Durban - The directors of a “cure for Aids” nutrition business, who were accused of defrauding investors out of millions, had not answered any of the allegations against them.
John Ellis, his wife Kathy and Jan Louw, of Edge to Edge Global Investments Ltd, had also tried to “shift the blame” for not producing financial statements for two years on to a former employee when it was a dereliction of their own duties.
These were just some of the reasons given by Durban High Court Judge Esther Steyn in granting a precedent-setting order giving the shareholders permission to initiate liquidation proceedings against the public company on allegations of fraud. The order - which is believed to be the first of its kind in South Africa - is required in terms of the Companies Act to protect solvent businesses from “frivolous and baseless applications”.
Although the judge made an immediate ruling, after hearing argument on the matter two weeks ago, indicating she believed the situation was urgent, she handed down her written reasons only on Friday.
She said the directors had lost sight of their role in managing a public company and the duty they had to act in the interests of shareholders.
She said those duties included compiling annual audited statements “which are vitally important to everyone with an interest in the company”.
Regarding “the facts”, she said the shareholders claimed that R60m to R70m had been invested and they believed the money had been misapplied and wasted.
“It was not disputed that the company has not issued any financial statements for two years. The directors faced with these serious allegations elected to challenge the shareholders’ locus standi (legal right to litigate) rather than answering the allegations.
“They do admit that they have not issued financial statements and they do admit that R31m had been received by the company and do not dispute there were ongoing attempts to market the company.”
The judge said a careful analysis of the answers given by Ellis and Louw showed that they had not directly responded to allegations or proffered any reasonable explanation to the allegations against them.
She said they had “most certainly made misrepresentations” regarding their claims of ownership of patents and “such conduct is misleading and potentially prejudicial to investors”.
Referring to allegations that Ellis failed to disclose a previous conviction of fraud and Louw a civil judgment against him, the judge said she was satisfied there had been a “number of misrepresentations”.
The shareholders, which include influential businessman Great Wall Motors South Africa chairman Tony Pinfold and others based in London, claim they invested on assurances that their money would be used to develop a nutrition pack - “a possible cure for Aids” - to be sold across Africa.
But, they claim, assurances that the pack was being tested in Abidjan by Nobel prize winner Professor Luc Montagnier were lies and they now believe the directors stole their money.
The liquidation papers are being drafted and the shareholders have indicated that they intend filing criminal charges against the directors.
The Mercury