Questions about illegal Kleinfontein settlement’s own bank

Elderly residents of the illegal ‘Boere-Afrikaner’ village Kleinfontein outside Pretoria are at risk of losing their savings, which are invested in the community’s own bank, because the funds have been used for building loans without proper security. This is according to the village’s residents’ association.

A court application by four members of the Kleinfontein Residents’ Association (KRA) recently led to the High Court in Pretoria ordering the Tshwane Metro council to enforce the law regarding urban planning and building regulations in Kleinfontein.

The ruling confirmed that the village is illegal because no formal township establishment process ever took place.

Residents buy shares in the company Kleinfontein Aandeleblok (Pty) Ltd and then gain the right to build on a specific portion of the company’s farmland.

However, there is no formal subdivision, and they do not receive a title deed or any other recognised rights over the property.

ALSO READ: Exclusive Afrikaner township defends legality after court orders Tshwane to enforce bylaws

Risk

Henk Cilliers and Sakkie Booysen, two of the applicants, are now also pointing out the risk this poses for those with savings at KSK Cooperative Bank Ltd, the village’s own bank, which is registered with the South African Reserve Bank.

According to the KSK bank website, it holds deposits of nearly R68 million.

“We use this for granting loans. Our loan book currently amounts to R46.3 million and is extremely healthy with minimal bad debt,” says the bank.

Shares in Kleinfontein Aandeleblok “with associated usage rights” are accepted as security for loans.

However, Cilliers and Booysen warn that these shares are worth little. The company sells them for R1 000 each, but their book value in financial statements is only R1 each.

“My house is worth R3 million in replacement value, but I only have 70 shares. If the company goes bankrupt, my claim is limited to the value of those 70 shares,” says Cilliers.

He believes the bank will struggle to sell shares in what the court has called a “criminal enterprise” at a price that could mitigate any bad debt. This will put Kleinfontein residents’ savings at risk.

The financial statements of Kleinfontein Aandeleblok further reveal that KSK already has mortgages over parts of the farmland on which the village is developed and which belongs to the company.

If this company goes bankrupt, the bank may likely seize and sell the land, even if there are now illegal structures on it.

ALSO READ: High Court declares exclusive Afrikaner township in Pretoria illegal

Development costs

The company is facing significant costs while the development, which residents decided to formalise more than a decade ago, is being formalised.

Authorities may require that internal roads and other infrastructure meet minimum standards, which could cost Kleinfontein millions of rands.

According to the financial statements, the company allocated about R7 million for this in 2023.

However, the directors make it clear that formalisation is “a capital obligation of the shareholders” and funds must be found for this.

This may include additional levies that shareholders must pay, or that the company incur additional debt.

The company acknowledges in its statements that opposition from KRA and the court case has hindered the sale of further shares, and in 2023 there was a net loss of R3.2 million.

ALSO READ: Residents of Afrikaner enclave want to be integrated into City of Tshwane

Question marks

Kokkie Kooyman, director of Denker Capital and a leading banking expert, questions KSK’s assurance that the Reserve Bank accepts the use of shares as security for loans.

“It is extremely rare for the Reserve Bank to accept shares as security. If they do, it would be at an extremely conservative value, such as 50% or 30% of the value of the shares on the JSE.”

The Reserve Bank confirmed that KSK has a banking licence but said it does not comment on entities it regulates.

Cilliers says inspectors visit KSK from time to time, but “they just have tea and eat milk tart and koeksisters and Hertzoggies [traditional Afrikaner confectionary], and then they leave”.

Numerous questions were sent to KSK, but Tinus Myburgh, managing director, merely said that various legal teams are currently studying the high court ruling and referred Moneyweb to the bank’s website.

In the meantime, the four applicants in the high court matter have applied for leave to appeal the ruling.

They hope to get on appeal an order for the directors of Kleinfontein Aandeleblok to stop any further development until it has been properly approved, to reverse the court’s finding that they approached the court “with dirty hands”, and to get a cost order against Kleinfontein Aandeleblok.

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