Pinnacle Point inquiry finds directors may have ‘traded recklessly’

A COMMISSION of inquiry into the financial affairs of troubled property company Pinnacle Point Group has found that some actions taken by directors may constitute "reckless trading".

Under the Companies Act directors could be held personally liable for the debts of the company if a company’s business is carried out recklessly or with "intent to defraud" creditors.

Edward Nathan Sonnenbergs (ENS), the law firm which represented the liquidators of Pinnacle Point in the inquiry, said on Sunday there were discussions with creditors to issue summons against those who may be deemed liable. ENS director of insolvency, Leonard Katz, said the claims could be in excess of R60m.

Mr Belmont raising his glass for the project with Marie May Kolsh in the background

 

Parties who lost money following the demise of Pinnacle Point Group in 2011 include banks, shareholders and workers aligned to the Southern African Clothing and Textile Workers Union whose pension moneys were invested in the ailing company.

The inquiry, led by retired Judge Meyer Joffe, looked into the dealings and affairs of Pinnacle Point Group as part of a winding up process for the company.
ENS was appointed by liquidators Progressive Administrators to lead evidence at the inquiry.

The inquiry’s findings noted, among other things, that some Pinnacle Point directors who paid more than R4.4m to Seychelles consul-general Marie-May Kolsch had acted recklessly.

Joel Morgan involvement with the project worth US $150M

Pinnacle Point had ambitions to develop a luxurious golf estate in the Seychelles to be known as the Ile Aurore Nouvelle.It won the tender but the project never took off.

Pinnacle Point’s former CEO, Hennie Pretorius, had testified in the inquiry that when he joined the group he was not given satisfactory explanations by directors Steve Kruger and Ivor Stratford of why Ms Kolsch had been paid.

Judge Joffe’s report quotes an e-mail from Mr Stratford describing the payments as: "Commission due as a finders’ fee and for ongoing lobbying of support that the Seychelles Consulate provides to PPG in dealing with governmental matters with regard to the ongoing development of the island".

A miniature plan of the project

The other matter that could constitute reckless trading, according to Judge Joffe’s findings, concerned a refund to Pinnacle Point Group from the Seychelles government.
In the Seychelles, Pinnacle Point Group had entered into a 99-year lease with the government for an amount of $5m.

The $5m had been paid in tranches between September 2007 and September 2008. The rand equivalent of the money then was about R39m.

As a result of cash-flow problems, Mr Stratford asked the Seychelles government for an urgent refund. The amount refunded was about R49.7m at the then prevailing exchange rate in March 2009.
About R28m of the R49m was paid to Property Promotions Management, a company linked to Mr Stratford and one Mervyn Key. Only R21.7m was made over to the Pinnacle Point Group.

Judge Meyer noted in his report that the payments to Mr Stratford’s company constituted a "gross breach" and the amounts were paid when Pinnacle Point Group was in dire cash-flow straits.

The R49m refund from the Seychelles and R28m paid to Property Promotions Management were never disclosed in the 2009 annual financial statements of the Pinnacle Point Group.

The judge said the abstraction of the money and the failure to report it "constitutes reckless conduct".
The other matter that may also constitute reckless trading by some directors was the payment of R4.4m to entities linked to one Richard Kawie, who had trade union links.

Judge Meyer noted in his report that the payment of more than R4.4m, "where no tangible services were rendered is, on the face of it, highly irregular".

The judge’s report noted that the invoices made out to Mr Kawie were "questionable in a number of respects". Some of the invoices were for "massive amounts with very little or no detail being provided as to the services which were allegedly rendered".

Considering the fact that Pinnacle Point had critical cash-flow problems, such payment, in the absence of clear reasons, could constitute reckless trading by the directors involved, the judge’s report said.

The difficulties at Pinnacle Point could be dated back to 2008 when the company merged with Acc-Ross, a company focused on primary residential development, resort and leisure developments.

When the R1.7bn share deal happened, through a reverse takeover, it was stated that the company would also raise R400m by issuing shares and the proceeds would be used for new developments and to settle debt.

After the deal Acc-Ross changed its name to Pinnacle Point Group. The company could not raise all of the R400m.

Rakeen Development, a real estate development company in the United Arab Emirates, had paid R200m for its shares, but Lurco Trading 278, linked to one Jac de Beer, failed to put up its R200m for the shares it had subscribed for.


Failure by Lurco to subscribe for its shares put Pinnacle Point Group under financial pressure, causing a cash crisis for the company, and forcing it to restructure its debts.

The report by the commissioner of inquiry noted that the failure by Lurco to subscribe for its shares worth R200m was not relevant to the failure of Pinnacle Point Group.

There has been a complaint by some of the Pinnacle Point directors that the role of Nedbank and Absa in the collapse of Pinnacle Point Group has never been investigated.
The directors, who include Mr Kruger, had wanted an investigation into the role of the banks in a single-stock futures deal.

 by Phakamisa Ndzamela, 22 July 2013, 05:55
 http://www.bdlive.co.za/business/property/2013/07/22/pinnacle-point-inquiry-finds-directors-may-have-traded-recklessly