Pamodzi / Aurora liquidation: Joint Provisional Liquidators briefing

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Mineral Resources and Energy

05 November 2014
Chairperson: Mr S Luzipho (ANC)
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Meeting Summary

The Portfolio Committee on Mineral Resources said it wanted to see justice done in the matter of Aurora liquidation so that workers can receive their compensation. The Committee was of the firm view that this liquidation matter must be settled and justice served.

The Committee received two reports from Mr John Walker, an attorney representing the provisional liquidators, who explained the status of the liquidation and the progress made thus far. According to him, Aurora mine was insolvent and thereby unable to pay its creditors and the workers. As a result, the Chief Master of the High Court from the Department of Justice and Constitutional Development placed the company under provisional liquidation in March 2009.

It was against this backdrop that the Committee wanted to understand the status of the liquidation in order to establish how it could assist to resolve the matter and also come up with preventative measures for the future. Meanwhile, the Committee applaud the work done by the Chief Master to shortlist a liquidators’ database and reiterates that a new list should be shared with the Department of Mineral Resources (DMR). The Committee has undertaken to check with DMR if there were any processes underway to tighten legislation that regulated the issuing of licences.

Some of the questions asked by Members were: when would the workers at Grootvlei be paid? What were the primary goals in terms of the claims against the controllers and directors of these mines? What progress had been made with the criminal charges laid? Over 2000 charges had been laid against looters; what follow up has been made in this regard? How could the Committee assist in bringing the issue to closure? Was the briefing simply to provide information to Members or could there be more expected from the Committee? What were the hindrances which made is so difficult for the Master to act much earlier? What lessons could be learned from the matter of Pamodzi Gold? Was there a process currently underway to clean up the list of insolvency elements? Was there an opinion which could be provided to the Committee to prevent the occurrence of such matters in the future? Where were some of the loopholes around the issue of looting? Where there any weaknesses with the Insolvency Act? How could the law be strengthened to prevent such problems in the future? What were some of the statutory limitations indentified? What was the underlying value of the three mines when taking into consideration their proven reserves?

Meeting report

Adv Lothian Basson, Chief Master of the High Court, Department of Justice (DoJ) introduced the team from the Chief Master’s Office, together with the representative from the Provisional Liquidators’ office. The Commissioner’s report had not changed; the Committee would now be hearing about the mines, the assets, liabilities and the investigations, in particular the Section 417 report and the investigation from the liquidators.

Pamodzi Group of Companies report to Committee
Mr John Walker, an attorney representing the provisional liquidators, thanked the Committee for the opportunity to be present. He explained that a liquidator was an appointed representative, appointed by the Master, to take charge of the assets of a company, to vet and collect the claims against the company, to dispose of the assets in a manner prescribed by law and to distribute the proceeds from these claims to the various creditors. The power of the liquidator came from three places; statutes (Insolvency Act and Companies Act), the Office of the Master, and from either the creditors or the High Court. In the case under discussion, there were three sets of mines, the Grootvlei, Orkney and Free State mines. His report was drafted by the provisional liquidator and only served the purpose of providing a general overview. The report indicated that when the companies were placed under liquidation, liquidators were appointed and they made an assessment on the kind of process which would yield greater monetary dividend to the creditors. Creditors and workers needed to be paid. The joint provisional liquidators believed that it was of vital importance to administer the estate in a way that would ensure the ongoing long term sustainability of the companies which would benefit the wider community and the vulnerable workers, amongst others. One option was to put the assets under auction, however it was decided by the liquidators that the mines be sold. The main reason for this was that this method would generate a better price than selling assets on auction. 

The joint provisional liquidators decided to embark on a transparent tender process to find a suitable buyer. Standard Bank was appointed to conduct the transparent tender process on their behalf. Standard Bank also created value packs and portfolios for the mines. Various companies were invited to tender to purchase these mines; the process commenced around June 2009. At that time Free State was sold but Orkney and Grootvlei were not yet sold. During the tender process the liquidators were approached by Aurora, who submitted a bid to acquire Orkney mine for R 290 million, this took place in July 2009. In September 2009 Aurora put in a similar bid for the Grootvlei mine. With regard to the three sales he explained that Pamodzi Gold Free State was sold for R 400 million, with dividends as follows:
•The existing waste rock dumps – R 20 million
•The Plant – R 100 million
•The North Mines – R 100 million
•The South Mines – 180 million.

The transaction was completed in 2010 and the First Liquidation and distribution account was lodged and confirmed by the Master of the High Court. The Industrial Development Corporation (IDC) claims that they have security over all the assets of the Pamodzi Gold Free State mine and lodged a secured claim against the estate. He explained that there was currently a legal battle going on between the IDC and the provisional liquidators. Despite the claim, IDC consented that the preferent portion of the claims of the workers may be paid out and an amount of R 67,733,460.79 was paid out to the workers. The validity of the security is still under investigation. And the joint liquidators are still awaiting a legal opinion on this.

Pamodzi Gold Orkney was sold for R 150 million. IDC claims that they have security over all the assets and lodged a secured claim against the estate. The validity of the security is still under investigation. And the joint liquidators are still awaiting a legal opinion on this.

Pamodzi Grootvlei was sold. Unicredit Bank claims that they have security over all the assets of Grootvlei mine and will lodge a claim in excess of R 1 billion. This mine was the most problematic to sell and the costs of administration after date of liquidation amounts to more than R150 million. These costs however were approved by Unicredit Bank being the secured creditor of the estate. At the outset of the liquidation, Unicredit Bank advanced R50 million to pay all arrear salaries to workers.

Litigation undertaken in insolvent estates of Pamodzi Group & Aurora Empowerment Systems
Mr Walker explained that the Commissioner’s Report came about as a result of a Section 147 inquiry into Pamodzi. His presentation is aimed at providing a brief overview of the litigation instituted by the joint liquidators of the Pamodzi Group of Companies as well as the joint liquidators of Aurora Empowerment Systems (Pty) Ltd. The inquiry commenced in August 2011 and the former directors and controllers of Aurora were summoned to appear, as well as other interested stakeholders such as former employees.

The reason for this was that the Master ordered the liquidators to find out what had happened. The Commissioner was also ordered to report to the Master on what occurred and how the situation went from having three operational mines to having one operational mine sold, a second mine semi-operational and a third mine destroyed. He explained that he was the main interrogator for the Pamodzi Group. All records of the mine were destroyed; inquiries were based on interviews of mine managers among other people. The only information on paper were Aurora’s bank statements which were sourced from Standard Bank.  The liquidators only concentrated on the EFT transactions which indicated the names of the people involved in the transactions, however in situations where cheques were written out, it became impossible to track them down.

He explained that the liability of the directors of Aurora Empowerment Systems (who included Zondwa Mandela, Khulubuse Zuma, Thulani Ngubane and consultants Fazel and Solly Bhana) in terms of section 424 of the old Companies Act read with section 77 of the new Companies Act, in Aurora claims were against any party who benefitted from the destruction of the mines. On Pamodzi’s claims against the controllers of Aurora, he said these claims were based on the reckless control of the affairs of Aurora to the detriment of the creditors of that company. The application by the liquidators was launched in 2012. Several interlocutory applications were launched by the respondents including application for security for costs and the discovery of further documentation. The application was enrolled for a hearing during August 2014, however approximately one week before the hearing, all the respondents applied for a postponement of the matter. The High Court in Pretoria granted each postponement application and the applications were postponed to March 2015. The quantum of these applications ranges from R590 million to R1.8 billion depending on the relevant respondent.

The claims by the Aurora estate to set aside impeachable dispositions amount, in total and that which we could identify thus far, to R35 million. These claims were predominantly issued against friends, family members and business associates of Suliman and Fazel Bhana who controlled the day to day operations of Aurora. In addition, a similar application has been launched against one of the erstwhile liquidators of the Pamodzi estate, Mr Enver Motala. It was however important to note that these claims were limited to that which could be identified from the limited source documentation available to the liquidators. During August 2014, the High Court in Pretoria granted the liquidators’ applications against certain individuals totalling an amount of R 15.5 million. All of the respondents in these applications have launched applications to rescind the judgments, which rescission applications are being opposed by the liquidators.

The common law claims in this respect vest in the unlawful removal of assets, belonging to the mines during the reign of Aurora.

Mr Basson said the Master’s Office wanted to highlight what actions were taken against Mr Motala and how far the process was.

Ms Christene Rossouw, Deputy Master of the High Court, said Mr Motala approached the High Court to review the decision to have him removed; Mr Motala wanted to be reinstated. The case began in 2011 shortly after he was removed. Currently the matter has not been heard, the matter was sub judice and the Master’s Office was therefore not able to comment any further on the matter. Mr Motala also issued a summons against the Minister of Justice and Ms Rossouw for R150 million for loss of income in the past three years. This was served 2 months ago and the High Court was still in the process of dealing with the matter.

Mr H Schmidt (DA) said the Commissioner’s report was a very complicated one because of the various court cases it was infused with, which dealt with over R600 million worth of fraud allegations. However the bigger issue was that Aurora still did not own any assets. Normally liquidation proceedings were there to ensure there was some form of return for the creditor. Yet the process started off with Pamodzi. His biggest concern was that of the payment of employees, R67 million was made available for this. When would the workers at Grootvlei be paid? The workers at Orkney had been paid. Where there any outstanding issues in this regard at the mine?

Mr Walker responded that the question would be an extremely difficult one to answer in law. When the liquidators handed possession of the mines to Aurora, all employees were paid up to date. At that time, they therefore became employees of Aurora. The situation with the worker claims was not a Pamodzi problem but rather an Aurora problem. Claims have been submitted by the workers to Aurora, but as previously stated, there was not even one single asset at Aurora and the R67 million was paid to Aurora and not to Pamodzi. Aurora has not paid its workers because it does not have any money. The liquidators were trying to recover these claims in an attempt to pay the workers. In Grootvlei, the administration costs were already in excess but there was no claim from workers.

The Chairperson asked that Members first ask all their questions, then an opportunity to respond to the questions would be given to both the Master and the liquidators. He asked that the meeting not proceed as if he was not in the meeting.

Mr Walker apologized and explained that it was his first briefing in Parliament.

Mr Schmidt said there were seemingly millions of rands outstanding in employee payments. Considering the value of those instituted summons, the claims have escalated to such an uncontainable state. What were the primary goals in terms of the claims against the controllers and directors of these mines?

Mr J Lorimer (DA) asked that the Committee be provided with some opinion about the exact amount that would end up getting to the workers; what proportion of what they are owed? It was almost four years since the fraud was discovered; one of the biggest in South Africa’s history. What progress had been made with the criminal charges that were laid? Over 2000 charges had been laid against looters; what follow up has been made in this regard?

Mr I Pikinini (ANC) welcomed the Commissioner’s report and thanked the Master for the detailed report. The work under discussion was certainly difficult to deal with. It was important that when a matter was sub judice Members be well informed and that clarity be given before any work continued. He suggested that some kind of social upliftment programme be put together to assist the workers at Aurora while they wait for their payments. The workers would always remain a serious concern for the Committee.

Ms M Mafolo (ANC) thanked the Chief Master’s Office for the presentation. He commended the Master’s Office for the good work they were doing.

Nkosi Z Mandela (ANC) thanked the Master and the provisional liquidators for the presentation and the report. He indicated that the Eastern Cape province contributed the majority of the workers in mines. What could be regarded as the solution to the matters highlighted in the report and how could the Committee assist in bringing it to a closure? Was the briefing simply to provide information to Members or could there be more expected from the Committee? The issues under discussion have been in the media and in the public space for far too long.

The Chairperson thanked the Master and the Commissioner for the report. He indicated that in the previous meeting reference was made to the National Director of Public Prosecutions (NDPP) and to the Special Investigating Unit (SIU), was the status of these two the same as it was in the meeting the previous week? Part of the responsibility of the Master was to ensure that there was protection of the vulnerable from financial and legal matters.  What were the hindrances which made it so difficult for the Master to act much earlier? What lessons could be learned from the matter of Pamodzi Gold? Was there a process currently underway to clean up the list of insolvency practitioners? Was there an opinion which could be provided to the Committee to prevent the occurrence of such matters in the future? Where were some of the loopholes around the issue of looting? There had been a breach of the Companies Act. Were there any weaknesses in the Insolvency Act? How could the law be strengthened to prevent such problems in the future? What were some of the statutory limitations they had indentified?

Mr Basson asked that the Chief Master’s Office be given the opportunity to return and report back to the Committee, with a few recommendations on a way forward, once the court cases have been finalized. The Master’s Office was currently not ready to make a final submission on the proposed amendments. There is a process underway to clean up the liquidators' list. When the process started, there were around 1500 people on the Master’s list, the number has since been reduced to 570. The Department was however not entirely satisfied that it has reached the end of its endeavours. The Department was currently in the process of considering adjustments to the Insolvency Act, with a special focus on the vulnerable insolvents with smaller assets. The Department was also busy transforming the appointment of liquidators, in an attempt to clean up and transform the process, with a stronger focus on women, particularly black women. 

He explained that Mr Motala was removed in 2011; however the matter has not seen the inside of a court. He argued that even though Mr Motala was suing the Department for R150 million, he would not be re-appointed. Liquidators would be held liable for the losses which they caused. Creditors were relatively protected against the wrongdoing of liquidators. With regard to the 2000 claims, he said the question would be best responded to by the National Prosecuting Authority and the police; they would be in a better position to indicate how far the process has gone. The issue of illegal mining was also a matter which would properly be dealt with by the relevant authorities. He assured the Committee that although the miners were mostly spoken for by trade unions, the Master personally met with some workers in an attempt to explain some of the processes which were currently underway; the lines of communication were always open. There was also a constant willingness from the liquidators to explain to the workers the processes under way; however some of these were difficult to explain. The legislature has done what it could in terms of the laws; however fraud was still a huge challenge. The SIU proclamation was under consideration at the Presidency; the law was therefore taking its course. He asked that the Committee allow the process to take its course; the matters under consideration were complex.

The issues of looting were complex ones to deal with because they happened on an individual basis. The Master’s Office was confident that a significant step forward has been taken to clean up the liquidators' list. The issue was an ongoing one. With regard to how the issue could be brought to finality, he said a lot has been done and a lot of these matters were at the final stage of litigation. The measure taken by the Judge President in combining the actions was a considerable step forward in bringing the matters into close. On what the Committee could do to assist, he reiterated that the oversight function of the Committee was of great value to the administration, especially in keeping the Master’s Office focused and honest. It was most valuable that the Committee continues to enforce its oversight responsibility. The finalized report would be shared through the appropriate channels; with the Portfolio Committee on Justice and the Portfolio Committee on Mineral Resources.

With regard to the claim against Mr Motala, he said the provisional liquidators would be in a better position to respond to the question. The provisional liquidators would also provide an indication around what the report seeked to achieve.

Ms Rossouw replied to the question on why it took such a long time to remove Mr Motala and said Mr Motala was not investigated prior 2009. The investigations into all liquidators commenced upon request by the Master, and this resulted in the removal of several liquidators, with Mr Motala being one of them.

Mr Walker responded to the question about the criminal cases which the liquidators were pursuing and said Members needed to remember that the Criminal Procedure Act indicated that if there were two simultaneous procedures; one in civil law and the other in criminal law, the civil law one needed to be suspended until the criminal proceedings had been completed. For this reason, the accused could not be expected to make admissions which could prejudice his criminal defense. The workers would get first preference from any money recovered. He warned that getting a judgment was one thing and getting the money was another, the processes of law took a long time. Liquidators were trying to keep everyone’s interests at heart.

Mr Schmidt said the value of the mine was found in its proven reserves and not in the surface structure. He asked why no mention was made around the underlying value of the three mines in their proven reserves. How did the liquidators deal with this?

Mr Basson cautioned the provisional liquidators and said what they said would be recorded and they would be held liable for whatever they say. The situation at hand was a very challenging situation, the figures at hand such as the mine sold for R 400 million was based on an appraisement of the assets before any of the liquidation processes happened. The majority of the assets have been sold. The Master was currently in the process of ascertaining exactly what the quantum was for the liability of the provisional liquidators. Liquidators were jointly liable upon appointment and were therefore covered by a bond of security. He explained that the quantum was the matter which was currently under consideration. All the relevant factors have been taken into consideration.

Mr Walker said the terms of the insurer included a claim that the liquidators could not make any admission or concession without their knowledge. He was precluded from responding to Mr Schmidt’s questions.

The Chairperson appreciated the report given and said the Committee would look at it and reach a way forward. Issues of liquidation had very serious limitations, justice however had to prevail. Mechanisms for reaching consensus were therefore quite critical. The Committee respected the processes underway, however any gaps identified in law would become the responsibility of the Committee to assess and make recommendations on. He agreed that the litigation matters under discussion were quite complicated in nature. Illegal mining also needed to be properly dealt with as was the issue of licensing. He asked that the list of 570 liquidators be made available to the Department of Mineral Resources. The Committee however was in full support of the process, with the necessary speed, so that justice could prevail.

The meeting was adjourned.


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