CIPC compliance order on PIC board based on factual errors
PRETORIA – Gilbert Marcus SC on Wednesday told the North Gauteng High Court that the grounds provided by the Companies and Intellectual Properties Commission (CIPC) to issue a compliance notice against the board of directors of the Public Investment Corporation (PIC) was based on factual errors.
The compliance notice issued by CIPC was to instruct the directors of the PIC to recover its R4.3 billion investment into JSE-listed Investee company AYO Technology Solutions.
Representing the PIC, Marcus submitted to Judge Cornelius van der Westhuizen that there were a number of red flags in the CIPC’s application and that the time frame was unreasonable.
Marcus contended that the CIPC claimed in its issuing of the notice that the PIC board had made a decision to invest in AYO. According to Marcus, this was not the case, as the board was not responsible for signing off the transaction.
He also argued that the issuing of the notice infringed on the rights and dignity of the current PIC board.
“It was not the board that approved the AYO transaction. The CIPC took a decision to issue the compliance notice prior to the meeting held on 20 February 2019. There was no due course and a decision was already taken. The issuing of the notice was irrational when the CIPC decided to issue a compliance notice that was impossible to implement. The decision was also informed by factually incorrect information which is why there needs to be an investigation that will lead to a conclusion of compliance. Had there been a hearing, the CIPC would be well aware that there is a process underway to retrieve its investment. The issuing of the compliance notice is bad in law and there is no basis for a factual dispute,” he said.
Arguing for the CIPC, Frans Arnoldi SC, was of the view that the PIC board needed to be held accountable for all investment decisions made in the company. He said AYO would still have an opportunity to defend itself within the context of the law.
At the PIC Commission of Inquiry into impropriety at the institution, Lana van Zyl, CIPC Senior Manager of Corporate Governance, Surveillance and Enforcement submitted a statement revealing that the CIPC issued the compliance notice largely based on Victor Seanie’s testimony in January.
Seanie, was an assistant portfolio manager who was suspended in January. He was one of the PIC officials involved in the valuation of Ayo. His testimony was largely contradicted by The PIC’s Portfolio Manager of Non-consumer Industrials and Listed Equities, Sunil Varghese who revealed that the enterprise value-to-earnings before interest, tax, depreciation and amortisation (EV/Ebitda) valuation method put Ayo Technology Solutions’ actual value as high as R47 a share at the time of the company’s initial public offering.
This was after a series of misleading reports, claiming that Ayo’s stock was valued too high when the PIC purchased a 29% stake in the company.
Meanwhile, in another matter at the same sitting, the CIPC and PIC also faced off as the first and second respondents against AYO, which had launched an urgent application to interdict the CIPC's compliance notice and have it set aside on the basis that it was unconstitutional.
Nazeer Cassim, SC representing AYO, said the granting of the compliance order would not only set a dangerous precedent, but it would also have disastrous consequences for the South African economy at large.
Xolani Mkhwanazi, the deputy chairperson of the PIC board, said last week in an affidavit filed before the court that AYO was confident the shares the PIC purchased were valid and would resist attempts by the PIC to recover the money.
In a statement released by AYO shortly after learning of the compliance notice by the CIPC the company said it was mindful of the administrative functions of CIPC, which must comply with the promotion of administrative justice.
“AYO believes that CIPC, by failing to inform and provide it with a copy of the alleged notice to the PIC, it has acted contrary to the provisions of the Promotion of Administrative Justice Act, 3 of 2000.
“Should CIPC, however, have engaged with AYO, the company would have provided the relevant facts, which in any event, are available in the pre-listing statement of AYO, published in April 2017. The PLS is a widely publicised public document,” the company said.
The matters have been reserved for judgment on Monday.