Bluthorn demands over P200m from individuals
Mpho Mokwape | Monday October 30, 2023 06:00
The embattled Bluthorn, which is currently under liquidation, says the directors and officers were the controlling minds behind the formation and the running of the business of the companies therefore, they are liable to pay BFM in the sum of P239 880 724.32. In the recently filed court papers by BFM final liquidator, Kopanang Thekiso, it states that Eune Engelbrecht, Joseph Mosimane, Tiyedzi Kamodi, Motlamedi Matome and Jeffery Sibisibi acted with intent to defraud investors. As such BFM wants the individuals who are said to have been jointly and severally been directors and officers of companies with the Group including Prime Employee Benefits (PEB), Bluthorn Procurement Solutions (BPS), Bluthorn Holdings and B Thorn be personally held responsible for acting recklessly and breaching their fiduciary duties. “The directors and officers were involved in the daily running of the business of the companies therefore they contravened provisions of the Companies Act and the Collective Investments Undertakings Act (CIU Act); and were the controlling mind behind the formation and the running of the business of the companies in the Group,” Thekiso said.
He added the directors were looking at enriching themselves at the expense of investors who were never updated on the running of the business. BFM Particulars of Claim In the papers, the liquidator on Claim A is seeking an order declaring that the defendants are personally responsible jointly and severally, the one paying the other to be absolved, for all of the debts of the companies in the Group in the total P239 880 724.32 a further relief the court may deem appropriate. Thekiso explained that during the course of the winding up of the companies in the Group it became apparent that the defendants carried on the businesses of the companies in the Group in a reckless manner, alternatively with the intent to defraud the creditors of the companies in the Group. “Alternatively they acted with the fraudulent purpose of unlawfully misappropriating the invested funds paid by the creditors and, unlawfully enriching themselves and other third-party beneficiaries,” he said.
The liquidator said the companies in the Group were set up as separate legal entities for legal and regulatory purposes only. However, in reality they were managed and controlled as a single entity, without any segregation between them. He pointed that the setup of the companies in the Group was such that the various companies could be regarded as divisions or department within the same company being BFM, with BFM taking deposits, and PEB and BPS being the retail end of the business. Thekiso also stated that as such several agreements were signed between the companies within the Group legitimise certain transactions as the same officers in BFM while one or more of the Defendants were also signing on behalf of the various companies in the Group, even though they were technically employed by BFM and that BFM was registered as an Investment Company with Variable Capital under the CIU Act but was operating as a deposit taking and micro lending entity. “This activity was not represented in the BFM prospectus as it was akin to the business of a bank. None of the investors in BFM ever received statements demonstrating how their investments were performing. There was no investment committee in the true sense as required by the ClU Act. A group of these same members of staff were put together and named as the BFM investment committee. There were no processes, policies or guiding principles governing the so-called investment committee,” he noted.
Thekiso said the defendants were knowingly parties to the carrying on of the businesses in the manner aforesaid and that they are entitled to claims based on the Companies Act and conduct of the defendants. Subsequently, the liquidator on Claim B said based on the Companies Act they are also seeking an order against the Defendants, declaring that their conduct involves a breach of their directors' duties and that the court should determine the extent of damages suffered by the companies in the Group as a result of such conduct of the Defendants, to be paid by them jointly and severally, the one paying the other to be absolved, in the amount equal to all of the debts of the Group in the total sum of P239 880 724.32. He explained that the Defendants breached their fiduciary duties as officers of the companies in the Group, in that amongst other things they failed to exercise their powers honestly in good faith in the best interests of the companies in the Group and for the respective purposes for which such powers are explicitly or impliedly conferred as envisaged in section 130 (c) of the Act.
“The Defendants placed themselves as shareholders and or directors in the internal companies which received funds from BFM and/or PEB. Actual control of funds that flowed to the internal companies seemed to have been controlled by some expatriate consultants whose engagement contracts with the companies in the Group were known only by defendant Engelbrecht,” Thekiso stated in court papers. Further Thekiso mentioned that appointments made to boards of the various companies and shareholding of those companies in the Group were done without any due diligence and the Defendants failed to prepare or provide any evidence of minutes, resolutions of assessments to any of the investments made by BFM. The funds collected by BFM were simply transferred to PEB for them to run the micro lending business and the defendants failed to treat the funds received by BFM as capital or equity investments by the owners of the funds, but rather they were treated as if they were funds lent to BFM both in terms of how these were accounted for and how they were utilised.
Moreover, Thekiso observed that the funds were not separately invested and tracked as such the Defendants failed to exercise the degree of care, diligence and skill required by Section 158 of the Companies Act, in particular, the prospectus provided to the Non-Bank Financial Institutions Regulatory Authority by the Defendants as officers of BFM which was used to market its products to the public, significantly misrepresenting BFM's actual activities. BFM’s further claim is that alternative to Claim A and Claim B, they are seeking an order against the Defendants, declaring that they are compelled, jointly and severally the one paying the other to be absolved, to repay or restore the money or property or any part thereof with interest at such rate as the court deems just or to contribute such sum to the assets of the companies in the Group by way of compensation as the court deems just. He explained that BFM did not have a custody agreement with any custodial service provider which is a serious breach of the CIU Act and the defendants failed to ensure that a custody agreement was in place. “They failed to ensure that the senior staff at the companies in the Group has the relevant technical expertise and financial experience to be occupying the positions they were appointed to in executing their duties, and as a result, the senior staff took instructions from the defendant Engelbrecht and his appointed associates from South Africa who we are not sure what their role was, without applying any due diligence or commercial sense,” he said. According to the papers, Thekiso also said the defendants failed to differentiate which companies in the Group they actually worked for as they assumed roles and duties in respect of companies which they were not employed for by BFM. The court papers on the liquidator’s claim C revealed that during the course of the winding up of the companies in the Group, it became apparent that the defendants were the controlling mind of the companies in the Group as they misapplied and retained money and property of the companies in the Group because the funds "invested" in PEB were on-lent to other companies.
He noted that control of the PEB debtors' book was at best poor or otherwise deliberately set up to allow for fraudulent movement of funds as there are no records of collection efforts and no assessments of recoverability of the various debts and significant amounts of funds were lost through 'internal companies. “These internal companies received long term funding from PEB with open ended contracts which have proven difficult to enforce and that defendants are guilty of misconduct and/or breach of trust in relation to the companies in the Group due to their breach of their fiduciary duties in terms of common law and the Act and the provisions of the CIU Act,” he said.
More on the claims made by the liquidator Thekiso, he stated that in alternative to above claims, they want an order against the defendants, declaring that they are personally responsible, jointly and severally the one paying the other to be absolved, without limitation of liability, for all or any part of the debts and other liabilities of the companies in the Group in the total sum P239 880 724.32. Also that the papers revealed that during the course of the winding up of the companies in the Group, it has become apparent that the defendants failed to comply with Section 189 and 190 of the Companies Act in that they failed to keep proper books of accounts because in the accounting books of BFM, the investments were simply reflected as trade liabilities of BFM as opposed to invested capital and as a result it was not possible to see from the books that the investments were not performing as expected. It revealed that the expenses of the companies in the companies in the Group were paid out of invested funds from creditors instead of revenue earned by BFM or other group companies. The funds invested in PEB were on-lent to other companies. “Control of the PEB debtors' book was at best poor or otherwise deliberately set up to allow for fraudulent movement of funds. There are no records of collection efforts and no assessments of recoverability of the various debts. Such failure contributed to the companies in the Group’s inability to pay their debts, alternatively, resulted in a substantial uncertainty as to the assets of the companies in the Group, further alternatively, has impeded the orderly liquidation thereof,” further reads the papers.
The liquidator also said they are entitled to the relief sought as against the defendants as they were running the companies and failed in their duties but rather acted recklessly and in the process enriching themselves at the expense of the companies and BFM investors. Engelbrecht, Mosimane, Kamodi, Matome and Sibisibi had not filed their answering affidavits at press time.