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Kelly Group accused of tender fronting

Mar 11 2012 11:22 Mpho Sibanyoni

Company Data

KELLY GROUP LIMITED [JSE:KEL]

Last traded 2.40
Change 0.02
% Change 0.01
Cumulative volume 47000
Market cap 240.00m

Last Updated: 15/09/2014 at 03:41. Prices are delayed by 15 minutes. Source: McGregor BFA

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The Allegation

Listed recruitment firm Kelly Group [JSE:KEL] stands accused in papers before the Johannesburg High Court of using two black companies as fronts to win labour broking tenders worth more than R372m.

The business contracts involve supplying temporary staff services to the SA Post Office (Sapo).

Ferdie Pieterse, Kelly Group chief operating officer, called the accusations “scurrilous and without foundation”.

The multimillion-rand contracts were awarded to joint ventures Kelly Group had formed with black economic empowerment (BEE) partners.

The joint ventures are Marula Staffing and Workforce Management.

Kelly’s BEE partner is Ndaba Ekude, and their joint venture with Kelly trades under the name Marula Staffing.

With Solly Tshiki & Associates, they are known as Workforce Management. In both ventures, Kelly Group held a 49% stake and the BEE stakeholders 52%.

Sapo financial records show that between September 2007 and this month, Marula Staffing was paid R293m.

Workforce Management received R79m from September 2007 to September 2010.

Both BEE companies allege that though they were major shareholders in the joint ventures, the minority shareholder, Kelly Group, acted as a major shareholder by solely:

  • Controlling the bank accounts of the joint ventures, where Sapo made payments;
  • Deciding how profits from Sapo should be split; and
  • Denying the BEE partners access to bank account statements and financial records.

Kelly lost the case after the judge found that it was not wrong for the company to compete with Kelly at Sapo.

This week Tshiki said he had been informed by his lawyers that he would be facing Kelly in court on March 20.

Pieterse denied that Kelly had taken Tshiki to court.

Solly Tshiki & Associates chief executive Solly Tshiki said: “Kelly has abused the relationship we had by undermining the partnership and treated my company as if it was a minority shareholder.”

Tshiki said Workforce Management was liquidated in 2010 after it lost the contract from Sapo after Kelly took the parastatal to court.

This was preceded by a series of court actions by Kelly against Solly Tshiki & Associates accusing the company of stealing the business that belonged to Workforce Management.

Themba Mahlangu, the director of Ndaba Ekude, said they had filed a court application to wind down Marula Staffing because Kelly has not cooperated in giving Ndaba explanations as to why certain transactions were made.

“Ndaba could not interrogate the bank account because Kelly told us that we could not see the bank records because the money in the account included money made by other Kelly subsidiaries,” he said.

Meanwhile, Ndaba and Solly Tshiki & Associates said they had employed a forensic audit firm to probe the finances of Kelly.

They, however, accused Kelly of refusing to give the forensic investigators access to Kelly’s financial records.

The Response

Kelly’s Ferdie Pieterse has refuted the allegations of fronting levelled by Ndaba Ekude and Solly Tshiki & Associates.

“We reject these allegations as scurrilous and without foundation as we would not exploit the names of Solly Tshiki & Associates and Ndaba Ekude to window-dress our BEE credentials,” said Pieterse.

He said Kelly had a number of different partnerships and joint venture agreements governed by a formal shareholders’ agreement.

“The shareholder agreements have exit clauses, allowing the one partner to buy out the other based on predetermined criteria.”

Pieterse said Kelly established the joint ventures to provide its BEE partners with the necessary resources and to transfer technical skills.

He denied that Solly Tshiki & Associates and Ndaba Ekude had not seen the bank records of the joint ventures.

He said it was incorrect that Kelly determined how profits should be split between Solly Tshiki & Associates and Ndaba Ekude.

“Dividends declared and other profit distributions are always done in relation to the respective shareholding of each party and after consultation with the partners.”

Pieterse explained that there were two mechanisms to distribute profits, which include administration fees, introduced at the insistence of Solly Tshiki & Associates and Ndaba Ekude, which allow the partners to charge a monthly administration fee to the joint venture based on a predetermined percentage of turnover.

He said NE directors Themba Mahlangu and Immar Dindwaza are “A” signatories on the Marula bank accounts while Kelly’s were only “B” signatories.

“No payment can be made from these accounts without the approval of an A and B signatory,” said Pieterse.

He said neither Marula nor Ndaba Ekude had the money to fund its working capital requirements.

“Marula sells the Post Office invoices to a financing company which, through a securitisation structure, gives Marula immediate full value,” said Pieterse.

“These funds are reflected in the main operating account of Marula, to which Ndaba Ekude has access as the A signatories.

“Since Marula sold these invoices (and therefore the right and title to these), the financing company collects the funds from Sapo using its own bank account,” he said.

“The Ndaba Ekude partners are fully aware of this structure, having been signatories to this agreement,” he said.

“A similar structure is in place to fund the working capital requirements of Kelly Group,” said Pieterse.

“The bank account is not in the name of Marula, but in the name of the financing company. The signatories to this bank account are the administrators and funders of the structure,” he said.

Pieterse said Mahlangu “used to be a clerk at Kelly, and he was nothing before the Marula joint venture was formed”.

He denied that the forensic auditors were not given access to the financial books.

“It is an absolute lie that Kelly refused the auditors access to the company’s financial books. I said to the so-called forensic auditors ‘please tell me what is it that you want to see?’. I am still waiting for the forensic auditors to respond.”

- City Press

 
kelly group  |  tender fraud
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