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Durban - Investors in an Aids nutrition business, who believe they were duped out of millions through lies and fraud committed by its directors, are one step closer to finding out what happened to their money.
In terms of an order granted by Durban High Court Judge Esther Steyn on Friday, they may now initiate liquidation proceedings against Edge to Edge Global Investment.
If successful, a liquidator will probe how the directors, Durban-based John and Kathy Ellis and Pretoria-based Jan Louw, spent R66 million invested in the public company and if, as alleged, they used it to fund their lavish lifestyles.
The shareholders went to court complaining they had invested on assurances that their money would be used to develop the nutrition pack - “a possible cure for Aids” - to be sold across Africa.
They said assurances that it was being tested in Abidjan by Nobel prize winner Professor Luc Montagnier and that the company had the patents on water-purifying drops and the pack itself, were lies.
The directors denied this and opposed the application.
The case has made legal history because it is believed to be the first of its kind involving a section of the new Companies Act which dictates that shareholders wanting to liquidate a company on allegations of fraud must first get the sanction of the high court.
Judge Steyn said she would still give written reasons - which would become case law - but gave her ruling immediately after hearing argument saying: “I am satisfied that this should not be delayed.”
Her ruling in favour of GWM chairman Tony Pinfold and his fellow shareholders, including overseas businessmen, is significant in that they have proved, on the face of submissions in their papers, that there has been some fraud or waste of company assets.
During argument by advocate Greg Harpur, for the shareholders, the judge commented several times that no financial statements had been prepared for two years.
She also commented on how the directors had failed to answer questions asked by shareholders even though they had a duty to act in their best interests.
The attorney representing the directors, Graham Parker, conceded that without financial statements, there was nothing to show that assets had not been misapplied or wasted. But he said the claims of a cure for Aids had an “alluring charm”, and clinical trials had shown there could be public benefit.
But Judge Steyn said these were not real facts and did not assist his argument.
Issues raised by Harpur - and which will be raised again in the liquidation application - include:
* The directors have still not answered 31 questions raised in a letter dated July.
* Ellis has not explained why he cancelled a meeting of shareholders at the Durban Country Club, or why he misled the club saying it was because someone had died.
* False representations were made in the Private Placement Memorandum that the pack was patented internationally, but Ellis now concedes this was not the case. He also told London investors about the patented product and that the crucial water component was also owned by the company.
* Although a Private Placement Memorandum was in place, Ellis claims all shares were bought from him, Louw and their trusts, and they were entitled to keep the money, although they did loan it back to the company.
The shareholders say they would not have knowingly bought shares to enable Ellis and Louw to do whatever they wanted with the money.
* Share movements show total funds of R66m, of which only R32m was ever paid into the company bank account, the rest being “diverted elsewhere”. An amount of R11.4m was paid from the company to the Ellis and Louw family trusts.
* Most of the money came from outside investors yet the majority shareholding was still held by the directors, their trusts and their families.
* A schedule put up by Ellis detailing amounts spent “genuinely” total R30m but includes large amounts such as R2.2m - Paris, R1.6m - travel and entertainment - which raise more questions than answers.
* Kathy Ellis claims she paid for their daughter’s R2.4m wedding last year. But, the shareholders say, she did not have the means to do so and, according to her tax returns, only earned R30 000 between February 2008 and February 2011.
* Ellis admits the pack has not been traded but does not explain how R1.5m was spent on “distribution”.
* In February, there was only R8 000 in the company’s bank account. The directors have failed to disclose the present balance.
* Ellis failed to disclose a previous conviction of fraud, and Louw that he had a large judgment against him.
Tina Halstead, the attorney acting for the shareholders, said the liquidation papers were being drafted and affidavits were being signed to lodge a criminal case against the directors.