Will Health Squared members get their medical savings back?

It is still unclear if members of Health Squared Medical Scheme, which was placed in final liquidation in February 2023, will get any of the money in their personal medical savings account back – but it appears unlikely if the scheme is insolvent.

Two former members told Moneyweb they are owed R56 000 and R125 000, respectively, and asked when this money would be repaid to them.

Ralph Lutchman of Concorde Administrators, the joint liquidator of Health Squared with TS Kekana, said the liquidators are not in a position to share information about the assets-and-liabilities position of Health Squared until the forensic investigation report has been finalised and “have not drafted a liquidation and distribution account as yet”.

Lutchman said the major creditors in Health Squared are government departments and members of the scheme but “without having compiled the liquidation and distribution account, we are unable to confirm the dividend payable at this time”.

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Few assets, many creditors

He said Health Squared did not have many assets, save for the office equipment, which has been found not to have substantial value, and that Health Squared members are classed as concurrent creditors in the liquidation process.

This means the claims of Health Squared members are unsecured.

Lutchman was also unable to comment on the total amount owed to former members from their personal medical savings accounts.

“The liquidators appointed forensic auditors to investigate the actual amounts owed to members and we are in the process of obtaining the requisite bank statements to assist them in finalising their report,” he said.

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Regulator’s view

The Council for Medical Schemes (CMS) said liquidation proceedings can take some years to complete and that it is not in a position to confirm “when these amounts would be paid”.

It said once all insolvency requirements have been completed and the Master of the High Court having been satisfied “the expectation is that all due amounts will be released to members”.

However, it did not mention or refer to the 2017 Constitutional Court judgment to an appeal brought by Genesis Medical Scheme against the Registrar of Medical Schemes and the CMS.

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ConCourt view – ‘member savings are scheme assets’

The ConCourt ruled in favour of Genesis Medical Scheme in that funds in medical scheme members’ personal medical savings accounts can be treated as assets of a medical scheme.

The CMS had argued that the funds in a member’s personal savings account are trust funds belonging to members and should not be accounted for in the same way as the other assets of a medical scheme.

It admitted at the time that the ConCourt judgment had huge implications for medical scheme members who have benefit options that include a savings account.

It said the significance of this judgment lies in the fact that members of medical schemes are not entitled to earn interest on the portion of the money in their personal medical savings accounts.

The CMS said an equally noteworthy implication is the huge bearing of the judgment on what happens to members’ contributions in a situation where a scheme is declared insolvent.

It said the implication of the judgment is that the members’ personal medical savings accounts cannot be ring-fenced from being accessed by creditors should a scheme become liquidated.

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Criminal charges?

It is still unclear if the trustees of the board of Health Squared will face criminal charges or civil action for alleged maladministration and other irregularities.

These were highlighted in 2022 in a provisional report compiled by Johannes Seoloane, provisional curator of the scheme, and in affidavits made in support of high court applications by the CMS.

The CMS said in August last year the curator was replaced by liquidators, who have the power to take appropriate action against any person who committed misconduct in the affairs of the scheme, but the CMS cannot interfere with any work of the liquidators.

Lutchman said the forensic investigation report is still awaited and will inform whether there is any credibility to the allegations and the way forward in this regard.

But he confirmed that the liquidators have applied for consent to convene an inquiry into the affairs of Health Squared and “the inquiry will accordingly proceed”.

The CMS told Moneyweb the liquidators have completed their forensic investigation into the root causes of the demise of the scheme and individuals responsible.

“The forensic report has been submitted by the liquidators of the scheme to the CMS,” it said.

“After the engagement with the liquidators, CMS will pronounce on actions to be taken.”

Moneyweb requested a copy of the forensic report from the CMS but was told the Medical Schemes Act does not permit it to share commissioned inspection reports.

Lutchman has not responded to a further query from Moneyweb for clarification on whether the forensic report has been completed.

The CMS said it is also unable to furnish the liquidators’ interim report because they are still working drafts “that may be used for criminal and civil proceedings” – but that once finalised “the reports will be released”.

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Members ‘still being assisted’

Lutchman confirmed the liquidators are in the process of drafting a further status report to creditors and the liquidator’s office, and the retained administrators of Health Squared continue to assist scheme members on a daily basis in obtaining required information as well as submitting claims.

He said the first meeting of creditors was convened and held on 31 March 2023 and the liquidators envisaged convening the second meeting of creditors within 2024 – but could not do so due to the investigations undertaken by the liquidators and with the finalised reports still being outstanding.

He was guarded on when the liquidation will be finalised, saying it would be “highly pre-emptive” to do so at this stage.

This article was republished from Moneyweb. Read the original here.