Former Aurora directors Khulubuse Zuma, Zondwa Mandela and Thulani Ngubane could be bankrupted if the Pamodzi liquidators succeed in making them personally liable for R1.7 billion in losses at the two mines.
This week the liquidators of the former Pamodzi mines, which Aurora had intended to buy and managed for close on two years, filed papers in the Pretoria High Court in terms of section 424 of the Companies Act.
The section allows for directors, and anyone else involved in the running of a company, to be held personally liable for any damage done to the company under their leadership.
The liquidators have also listed Sulliman (also known as Solly) and his son Fazel Bhana, who they believe were the real brains behind the Aurora operation.
Under Aurora’s care the two Pamodzi mines, located in Springs and Orkney, were stripped of assets and gold, the liquidators have told the court.
If the Pretoria High Court agrees that the five businessmen should be held responsible, their homes, vehicles and shares in other businesses could be taken to repay the R1.7bn.
In court papers, liquidators say that in addition to misrepresenting their financial position, the Aurora directors allowed the mine’s insurance to lapse.
University of KwaZulu-Natal Company Law Professor Robert Williams says the section 424 application could bankrupt the group if they do not have the capital to repay the debt. It could also make it difficult for the group to enter into any new business relationships.
“It could cause huge reputational damage. It is about the worst case scenario for a director,” he said.
Williams said the liquidators would have to prove that the men were “reckless” in their handling of the company, and that the court had “wide discretion” for making that finding.
Unlike in criminal proceedings, the liquidators did not have to prove definitively that there had been fraud, he said. “(This section of the legislation) has been used increasingly. It is the biggest weapon against directors who allow companies to be managed badly.
“In criminal proceedings the burden of proof is higher. In civil proceedings the case is decided on a balance of probabilities. You just have to prove that your version is more reliable,” he said.
“Some directors have insurance against that kind of liability. It may be expensive, but often the company pays the premium and they are protected in case of a breach.”
Meanwhile the Pamodzi liquidators have detailed the history of Aurora’s involvement with the Pamodzi mines in a 110-page affidavit. In the affidavit, liquidator Johan Engelbrecht says Aurora lied about their ability to manage the mine, as they did not have the required funds or expertise.
This was among the details which emerged at a Master of the High Court investigation into the transaction.
Zuma, who is President Jacob Zuma’s nephew, told the inquiry that he had little to do with the day-to-day running of the mines.
Mandela is former president Nelson Mandela’s grandson.
Engelbrecht said Zuma “was in complete dereliction of his statutory duties as a director of Aurora, that he sought to delegate all his functions and obligations to (Sulliman and Fazel Bhana) without satisfying himself of their bona fides or capabilities”.
He said the Aurora directors and the Bhanas attempted to defraud the liquidators by representing it as a company with sufficient capital and resources. Evidence showed the Bhanas “were in de facto control” of Aurora and “they fraudulently failed to disclose the existence of secret creditors, including their family members”, Engelbrecht said.
Zuma had told the inquiry that the Bhanas “were taking decisions on their own and ran the company”.
However, the father and son painted a different picture, saying they merely advised the Aurora board and raised funds.
The liquidators say it was “clearly reckless” for Bhana family loans to be repaid even though workers, Eskom and security companies were not paid.
They have also told the court that the group carried on business and incurred debt knowing there was no chance of it being repaid.
Contacted for comment, Ngubane said he was not worried about the application. “Let them do whatever. The law is there. It is a different scenario when you want to emotionally say something. I am not going to worry about it,” he said.
Zuma, Mandela and Fazel Bhana could not be reached for comment.