OUTA saves R1.7 billion rehab funds from Gupta grips

This follows a settlement reached between the legal representatives of the fund’s Trustees and the Organisation Undoing Tax Abuse (OUTA) in the High court in Pretoria on Thursday. The settlement concluded that the fund be reallocated from its frozen state in the Bank of Baroda, to its rightful place under the supervision of the Department of Minerals.

The settlement also protects the rehab funds from being utilised to cover the legal costs incurred by the trustees who sought to keep their grips on the R1.7bn.

“Today we saw justice in our Democracy. The former trustees would have to pay for their legal costs out of their personal pockets,” said Stefanie Fick, Executive Director and Head of Legal Affairs at OUTA. “With conflicted fund administration, the legality of the use of the funds and the former Minister, Mosebenzi Zwane’s absence in action, prompted OUTA to act fast and hold those who abused their authority to account,” Fick added.

On 26 September 2017, the funds held in the Optimum and Koornfontein Mines Rehabilitation Fund were frozen after OUTA obtained interim relief on an urgent basis. The funds were secured specifically to be administered by independent trustees and utilised only towards rehabilitation of the surrounding environment of the aforementioned mines when required.

OUTA investigated the matter regarding the independence of the Trustees of the fund and the use of some of the money. According to Fick, one of the Trustees, Govender, breached her duties by accessing funds. “What's worse is the fact that Govender alone was purporting to act for the Trusts and as sole Trustee, which is illegal as there should be a minimum of two trustees and they must act in the best interest of the trust and independently.”

OUTA indicated that Govender authorised the use of some R7.5 million in interest of the Optimum Trust Fund and that she authorised the encumbrance of some R150 million or more of the Koornfontein Trust Funds as security for a loan taken out by Koornfontein. They have very carefully avoided informing the Court in their answering affidavit as to the extent to which they may have done so.

“The trustees may not release any trust funds except for the sole purposes of the trust and to meet its statutory obligations, which means for rehabilitation at closure. They may not release what the mining respondents refer to as a ‘surplus’ in excess of ‘capital reserve’, they may not release ‘interest’ and they may not use the funds for ‘concurrent rehabilitation’ whether directly or as security for any loan, as has occurred” said Fick.

There was no need to obtain a loan for that purpose in the amount of R150 million or any significant amount. OUTA contended accordingly that the R150 million loan was not in fact sought, and in turn secured with Trust funds, with the intention of using it for that purpose.

In any event, it was unlawful to authorise the use of Trust funds to secure the loan with the intention of the loan being used for concurrent rehabilitation. The Trusts’ funds should not have been used for security at all and were placed at risk.

What is more perplexing is that there was in fact no plan to effect concurrent rehabilitation at Koornfontein, despite written departmental approval having been sought and granted (which was later denied by the department of Minerals). Koornfontein mine is an underground mine and unlike an open cast mine, does not require concurrent rehabilitation.

Govender further explained that despite having obtained the approval to access the trust funds for purposes of alleged concurrent rehabilitation, a separate loan was secured for that purpose. Irrespective of the motives whether by Govender or the Department of Minerals, the factual matrix around the alleged concurrent rehabilitation speaks for itself.

Conflicted Trustee

Govender’s role in the Oakbay group was more extensive than thought. As appears from the founding affidavit, she is one of two active directors of two other entities that are part of the group of Gupta companies, Sahara Computers (Pty) Ltd and VR Laser Services (Pty) Ltd. She and Ragavan are also both directors of Mfazi Investments (Pty) Ltd which is the company through which Govender has an indirect interest in Tegeta.

Govender has disputed that she has any conflict of interests. This was not the case on the common cause facts. Indeed, her approach revealed a lack of appreciation of what this entails.

OUTA indicated in its papers that there was no independence within the Trusts’ structures throughout the Tegeta era. “It is an inescapable conclusion that this has led to the unlawful conduct of which relief should be sought.”

The real state of funds

Govender admitted that R7.5 million of the Optimum Trust’s funds were used during 2016. She said this was sourced from interest and not capital and she said it was used for concurrent rehabilitation.

Govender said that there is a surplus in the Trust, which is only required to hold provision for R1.298 billion where the Trust has an amount of R1.470 billion invested with the BoB.

The Optimum report attached to the answering affidavit itself says that at least R1,545,178,781.44 is required for the financial provision. The most recent approved liability is based on an assessment at the end of the Glencore era and indicated that as at December 2015, R1,573,466.00 was the liability which does not take account of inflation.

Furthermore, it appears that there was in excess of R1.7 billion in Trust yet only some R1.47 billion currently remains, that is before interest is taken into account.

The custodian of Minerals and rehab funds

According to Wayne Duvenage, CEO at OUTA, the former Minister, Mosebenzi Zwane, had failed to intervene in circumstances where he ought to have. “Zwane’s silence was troubling. He did not respond to any of OUTA’s concerns of the attempts to access the Trust funds and the use of the Trusts’ funds.  Only in Parliament, did he confirm that the Trust funds were intact,” said Duvenage.

In view of the Zwane’s stance to these proceedings and the Trustees’ conduct in respect of the Trusts, Fick said “he made it clear that he will not, as he contends in fact ‘hold the appointed trustees to the applicable prescripts’ of the law or ‘call them to account’ as he is entitled to by law, which is very concerning.”

Zwane, said that while it was not for him to defend the case against the trustees, he has “not experienced any difficulty with the respondent trustees, nor have they given me any reason to believe or conclude that they are either unsuitable as trustees or that they have conducted themselves in a manner justifying their removal.”

“On the information to hand it is difficult to see why Zwane did not intervene. As the Minister, he ought to have taken steps to protect the Trusts’ funds and hold the Trustees to account. OUTA denies that they have not given him any reason to believe or conclude that they are unsuitable as trustees or conducted themselves in any way justifying their removal. To the extent that the Minister and his Department adopted this view, this reveals a manifest dereliction of duty on their part,” said Duvenage.

OUTA made reference to the evidence in the Bank of Baroda proceedings that emerged relating to the Koornfontein loan. The Minister was specifically informed that there was evidence that the Koornfontein Trust funds were used in 2016 to secure loans of Koornfontein. He was also informed that the Trusts’ funds were being used for concurrent rehabilitation purposes. He was fully informed about the challenges being faced regarding accessing banking facilities and the imminent closure of the Trusts’ accounts but the former Minister did nothing.

OUTA is confident that the new Minister of Minerals, Gwede Mantashe, will exercise his powers as the custodian of the rehab funds responsibly as to uplift the Constitutional values these funds are set out to protect.

OUTA wants to thank the public and all of its supporters in enabling the team to investigate the matter, build the case and to develop the sustainable finances to see the case through. “We believe that this is the start of many successes on the journey of progressing South Africa through active citizenry,” Duvange said.

“This is just another testament to OUTA’s dedication to protecting the taxpayer from carrying the burden of corruption and maladministration. Our legal team have been working very hard behind the scenes for months on this case and we are proud of this end result. Even though we were ready to battle this out in court, the settlement achieved our intended purpose which was to protect these funds,” Duvenage said.