Another chapter in the African Bank saga: The facts

Another chapter in the African Bank saga: The facts

By Jerome Veldsman

In 2014, the previous African Bank, then a subsidiary of the then JSE listed African Bank Investments Limited (ABIL), collapsed under the weight of arrogance, abysmal credit control, and corporate governance failure.  The ABIL share price dropped from R28.15 per share in April 2013 to R0.31 in August 2014.

Two ABIL shareholders (the Shareholders), holding, respectively, 1.73% and 3.24% of the issued share capital of ABIL, sued 10 directors (the Directors) of ABIL and African Bank, and the auditor (Deloitte) (the Auditor) of ABIL and African Bank, in the High Court, Pretoria, for collectively over two billion Rand, based on the reduction in the value of their ABIL shares. 

In their particulars of claim, the Shareholders averred that:

  1. The Directors had failed to exercise their powers in good faith and in the best interests of ABIL and African Bank, resulting in the business of ABIL and African Bank being carried out recklessly or with gross negligence in contravention of the Companies Act, causing ABIL and African Bank to suffer significant losses.
  2. The Auditor had deliberately, alternatively, negligently failed to take sufficient steps to rectify and disclose to the investors and shareholders of ABIL and African Bank, including the Shareholders, the true state of affairs at African Bank in the financial statements.  Had the Shareholders been apprised of the true state of affairs, they would have convened a meeting of ABIL’s shareholders, and caused ABIL to remove African Bank’s directors from office, which would have put an end to the mismanagement of African Bank and would have prevented further losses.

Both the Directors and the Auditor excepted to the particulars of claim.  Simplified, an exception is a challenge to a particulars of claim that the cause of action or conclusion of law averred in the particulars of claim cannot be sustained on any reasonable interpretation that can be put on the facts as averred in the particulars of claim.

A Court must, in adjudicating an exception, assume (without determining) that the facts averred in the particulars of claim are true and correct.  So, no evidence is led when a Court decides on an exception.

The High Court upheld the exceptions raised by both the Directors and the Auditor, and the Shareholders appealed to the Supreme Court of Appeal (SCA).  That decision of the latter Court, in Hlumisa Investment Holdings (RF) Ltd and Another v Kirkinis and Others, was handed down on 3 July 2020. 

The High Court upheld the exceptions raised by both the Directors and the Auditor, and the Shareholders appealed to the Supreme Court of Appeal (SCA).  That decision of the latter Court, in Hlumisa Investment Holdings (RF) Ltd and Another v Kirkinis and Others, was handed down on 3 July 2020. 

Also in this issue, in:

  1. Another chapter in the African Bank saga: The Directors, we discuss the SCA judgement in respect of the exception against the claims against the Directors.
  2. Another chapter in the African Bank saga: The Auditor, we discuss the SCA judgement in respect of the exception against the claims against the Auditor.

We regard the SCA’s judgment as correct, and doubt that the Constitutional Court will grant the Shareholders leave to appeal, as the subject matter does not specifically engage the jurisdiction of the Constitutional Court.  However, the latter Court has a lot of flexibility regarding its jurisdiction.



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Another chapter in the African Bank saga: The Directors

Another chapter in the African Bank saga: The Auditor