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Capitec shares can be sold to settle state capture losses, court rules

Nov 05 2019 17:54
Lameez Omarjee

The high court has ruled that Capitec must allow a Gupta-linked company to sell the shares it owns in the bank as payback for losses suffered by a Transnet pension fund.

Recently, the Transnet pension fund won a major lawsuit against Regiments, which has been linked to the Gupta family. Regiments has to pay the fund R500m - and it wants to sell its Capitec shares to settle the bill.

But Capitec took legal action to prevent Regiments from selling these shares, in part because it wanted to protect its B-BBEE status. The Regiments affiliate, Coral Lagoon, which owns the shares, is black-owned.

Judge Bashier Vally ruled against Capitec in the Johannesburg High Court on Tuesday. According to the ruling, Capitec must, within two working days of the order, give consent to Coral to sell its 810 230 Capitec shares.

Regiments owns 59% of an entity called Ash Brook Investments, which in turn owns 100% of Coral Lagoon.

The sale of the Capitec shares is meant to help Regiments settle its debt owed to the Transnet Second Defined Benefit Fund. In August 2019, the two entities reached a settlement agreement. Regiments' debt to Transnet would be liquidated on the sale of the shares, according to the judgment. Fin24 previously reported that the settlement is valued at R500m.

The fund claims to be one of the pension funds which has had R1bn "stolen" from it by Regiments, the judgment read.

The Transnet Second Defined Benefit Fund in a statement said it welcomes the judgment.

"Capitec's consent was the last outstanding barrier to the settlement which will provide elderly and indigent pensioners with value in excess of R600m in compensation for state capture related crimes perpetrated on the fund," it said.

In an emailed response to Fin24, Capitec said it is studying the ruling before giving any comment. "We are aware of the judgment and will comment after we have had a chance to study it and discussed it with our legal team. We expect to make a statement in less than 48 hours," a Capitec spokesperson said.

Judge Vally found that Capitec's refusal to give consent to Coral to sell the 810 230 shares, is in breach of its "contractual" and "common law duty" to act in good faith and reasonable conduct towards Coral, as the bank has taken "contradictory" stances on the sale of the shares.

According to the judgment, Capitec had said it was withholding consent of the sale of the shares to protect its B-BBEE rating, as Coral was a B-BBEE shareholder. But Vally found this argument bore no weight at all, as Coral's shareholding in Capitec was a mere 0.7%.

Coral had previously owned 10 million Capitec shares, but in 2012, sold 4.83% of its shareholding to the Public Investment Corporation and eventually Investec.

"Since it (Capitec) was indifferent to losing 4.83% of its rating, it can hardly complain about losing 0.7%," Vally said. In his view, Capitec's inconsistency and failure to provide reasonable justification for its inconsistency, strengthened Coral's argument that Capitec was not acting in good faith towards it.

Refusing to grant the sale of the shares, indicated that Capitec was willing to be associated with Regiments, which through state capture had "stolen" R1bn from "indigent" pensioners belonging to the Transnet Second Defined Benefit Fund, the judgment read.

"The logical conclusion of its position is that the loss of 0.7% of its B-BBEE rating is so important that it would rather keep its links with a shareholder who is tainted by dishonesty than reduce the rating… In any event, the protection of its B-BBEE rating as a reason for refusing its consent is not persuasive," Vally said.

Vally also pointed out that Capitec cannot say it is in its best interest to keep Regiments as a shareholder because 60% of the pensioners of the Transnet fund are white.

"A reasonable person, considering the appropriate moral course to follow in this case, would no doubt take note of their poverty as well as the fact that they had been dishonestly deprived of R1bn of their wealth by a shareholder of Capitec..." The argument that Capitec was protecting its own interest bore no weight, in this regard, Vally said.

Vally said it appeared Capitec was making Coral pay for its legal duty in terms of the B-BBEE Act.

"In conclusion, I hold that Capitec, with its duty of good faith and reasonable conduct to Coral Lagoon, is not acting in good faith," Vally said.


transnet  |  capitec  |  regiments  |  pension fund  |  state capture
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