‘Reckless’: The details of Khulubuse Zuma’s provisional sequestration

Last week the Durban High Court provisionally sequestrated the estate of businessman Khulubuse Zuma pursuant to an application by the liquidators of the Pamodzi Group of Companies (Pamodzi). Pamodzi comprised six mining companies, all of which are in liquidation.

Zuma has been given until March 4 to show why the provisional order should not be made final.

History

The matter had its genesis in 2009 when Zuma and Zondwa Mandela, through Aurora Empowerment Systems (Aurora), gained control of mines on the outskirts of Johannesburg that belonged to Pamodzi Gold.

Zuma is the nephew of former president Jacob Zuma and Mandela the grandson of the late president Nelson Mandela.

Aurora had five directors: Zuma, Mandela, Thulani Ngubane and father-and-son team Sulliman and Fazel Bhana.

Read: Aurora bosses disappear with workers’ wages

Reckless directors

In 2012 the liquidators applied to the Pretoria High Court to have Aurora’s directors declared to have been reckless. If the application was successful, then the directors of Aurora would be personally liable to Pamodzi for all monies owed to it by Aurora.

The matter came before Judge Eberhard Bertelsmann, who in June 2015 handed down his judgment, in which he held all the directors liable to Pamodzi.

Concerning Zuma, the judge noted:

• ‘Zuma is in a slightly different position from the other respondents. It is common cause that he was not involved in the day-to-day management of Aurora’s business. He was not directly involved in the negotiations with the liquidators and was informed from time to time by the other respondents or attorney Michael Hulley about the state of affairs. His position must therefore be judged in the light of his personal circumstances and knowledge of the Aurora affairs.
• ‘Zuma was clearly one of the two directors who could bring political connectivity to the table and must therefore have known of the crisis that confronted the proposed transaction. In addition, he was prevailed upon to make R35 million of his own funds available to tide the ailing business over. At least some of these funds were devoted to the payment of security services. He did know, therefore, that the mine assets were at risk. It was therefore at the very latest during November of 2009 that he was aware of serious trouble in Aurora’s affairs.
• ‘Zuma was put upon inquiry at the latest at the end of 2009 and cannot be heard to protest his ignorance of the true situation after that date. His failure to act once he knew of the dire state of affairs is clearly a reckless disregard of his duties as a director. If he really did not know, it is because he deliberately chose not to be informed. Such an approach constitutes recklessness and Zuma should therefore be held liable for all losses that were incurred on or after the 1st December 2009.’

Over 5,000 miners lost their jobs as a result of these reckless directors.

Read: Khulubuse Zuma ‘did not know Aurora representations were false’

Proof of claims

The liquidators proved two claims against Zuma: R122 million and R1.4 billion. Judge Bertelsmann refused Zuma leave to appeal against his judgment and the Supreme Court of Appeal similarly closed the door on him.

Read: Aurora: Zuma application dismissed

Settlement negotiations

Zuma and the liquidators entered into settlement negotiations.

Zuma offered two payment plans:

• R23 million: R5 million was to be paid upfront and R16 million in 32 consecutive monthly payments of R500,000.
• R2 million: In 20 consecutive monthly payments of R10, 000.

There were two important provisions in the R23 million settlement agreement. Firstly, Zuma would adhere to it. Secondly, if Zuma had been less than candid in disclosing the true extent of his assets, the agreement would fall away and the Bertelsmann judgment would be of full force and effect.

Zuma’s assets

Zuma deposed to an affidavit which he handed to the liquidators detailing what purported to be a detailed disclosure of his assets and the value thereof.

Here are some of the assets mentioned in the provisional sequestration court papers:

• A residential property in Umhlanga, KwaZulu-Natal (the value of the property was not disclosed; in May 2016 R1.5 million was owed to First National Bank)
• A 2010 Range Rover HSE Autobiography worth some R200,000
• An indebtedness towards Protea Coin Group in the amount of R9,912,356
• An indebtedness to Kapital Minez Consultancy in the amount of R1,600,000; and
• An indebtedness to legal firm Strauss Daly in the amount of R2,500,000.

Zuma was fingered in the so-called Panama Papers. He stated that he did not have any interest, be it directly or indirectly (in his personal capacity or through an agent) in any company, trust, corporation and/or other legal entity, except in an entity named by him as ‘Impinda Transport’, a company he declared had no value. He also stated he was not a creditor of any party.

Failure to pay

Zuma kept up his payments to the liquidators until June 2017 and two months later paid R200,000. This meant the settlement agreement had become a nullity and Zuma was now bound to the Bertelsmann judgment: R122 million and R1.4 million – minus the payments already received.

When R200 simply isn’t enough

The Insolvency Act has a provision that you can be sequestrated if your liabilities exceed your assets by R200. Liquidator Johan Engelbrecht’s affidavit sets out the statutory allegation respectfully: “It follows that the liquidators have a claim against [Zuma] in an amount exceeding R200.”

Act of insolvency and benefit to creditors

The liquidators told the court that the R23 million compromise by Zuma was made with one of his creditors to the exclusion of others and that this amounted to an act of insolvency. They allege that if a final order is granted on March 4 then the appointed liquidator will be able to fully investigate Zuma’s financial affairs, including his 34 directorships.

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