The Public Investment Corporation (PIC) and the JSE-listed company AYO Technology Group are taking the Companies and Intellectual Properties Commission (CIPC) to court.
At the end of last month, the CIPC issued a compliance notice to the directors at the PIC demanding they recoup R4.3 billion the PIC invested in AYO together with interest for six months on the amount.
There was a threat of criminal prosecution if the PIC did not comply within 15 days, which falls due this Thursday.
However, the PIC and AYO have hit back by asking the North Gauteng High Court to intervene on an urgent basis and declare the notice unlawful.
Xolani Mkhwanazi, the deputy chairperson of the PIC board, said 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.
Mkhwanazi said, as a result, it would be “objectively impossible” for the PIC to recover the money.
He added the notice was “irrational and unreasonable” and that the process followed by the CIPC was “procedurally unfair and unlawful”.
Mkhwanazi said the PIC would suffer irreparable harm if the court did not set aside the notice issued by the CIPC.
“The consequence of non-compliance with a compliance notice is that the PIC and its board are non-compliant with the Companies Act. The PIC manages almost R2 trillion in investments, mostly on behalf of the Government Employees Pension Fund. Its holdings constitute approximately 12.5% of the market cap of the Johannesburg Stock Exchange.
“A finding that the PIC is acting contrary to the Companies Act, in and of itself, will impact on the reputation and credibility of the PIC as an investor, and could have broad-ranging negative consequences for South African markets. That is so, I am advised, because under section 171 (5) of the Companies Act the notice remains in force until it is set aside by the Companies Act.”
In addition, Mkhwanazi said, it would be impossible for the PIC to comply with the notice because it required an outcome - the recovery of the funds - without indicating the legal basis on which such a recovery can occur, or what steps are to be taken or are required to reach the stipulated outcome within the period prescribed by the notice.
Had the CIPC cared to give notice of its intended findings and decision prior to issuing the notice, he said, the PIC would have advised it of the “correct facts” and the processes underway, which would have or ought to have materially influenced its decision.
“The process followed by the CIPC was accordingly procedurally unfair and unlawful.”
Mkhwanazi further argued the notice was based “on a material error of fact”. This was because it was predicated on non-compliance by PIC board members with their fiduciary duties - in approving the share price - when the decision had been taken by former PIC CEO Dan Matjila without the knowledge and approval of the board in line with his delegated authority.
On Thursday, AYO also launched an application on an urgent basis in the North Gauteng High Court.
It cited the CIPC, the minister of trade and industry and the PIC as respondents.
AYO CEO, Howard Plaatjes, asked the court to interdict and restrain the CIPC from enforcing the compliance notice and prohibit the PIC from complying with the notice.
AYO also brought an application to review the CIPC notice and ultimately set it aside.
Plaatjes said AYO had grown its business in South Africa and abroad and was well positioned to grow its business even further.
“The effect of this directive, if enforced (whether within 15 days or thereafter) is that AYO must return R4.3bn to the PIC; this notwithstanding the fact that it has acquired those funds pursuant to a valid transaction and the effect of returning it, at this stage, is to do untold harm to the business of AYO and the investment of its shareholders.
“Despite these dire consequences for AYO, it was neither consulted nor afforded a hearing prior to the issue of the notice.
“Surprisingly, in its letter of February 27, 2019, the CIPC takes the view that because the notice was issued to the PIC, the CIPC seemingly bore no obligation to afford AYO a hearing; it is contended that the PIC should make contact with AYO. I am advised the CIPC’s view is plainly wrong as a matter of law.”
The matter is set to be heard on Tuesday.
The PIC bought a 29% stake in the technology firm at R43 a share in the listing.
Media reports later alleged that the share price had been inflated, sparking questions from the JSE, the Financial Sector Conduct Authority, the PIC and CIPC.
On February 21, the CIPC issued an unprecedented compliance notice ordering the PIC to recoup its investments in AYO in what has been seen in some quarters as part of a “co-ordinated attack” on the Sekunjalo Group, which owns Ayo and Independent Media, the publishers of newspapers such as Sunday Independent, Sunday Tribune and Sunday Argus.
Legal expert Zwakele Madonsela, from BZH Madonsela Attorneys, said the matter represented a potential reputational management disaster for the CIPC.
“It’s clear from the papers that the CIPC has overstepped the mark and did not apply their minds to the facts. They did not seek opinion from the PIC or AYO and acted irrationally. Those are the facts according to both sets of papers.”
He added that the CIPC’s move had resulted in massive reputational harm to AYO.
“This smacks of possible collusion between someone from the PIC and CIPC. Any investment in South Africa can no longer be considered safe if the regulator can overstep its boundaries for no good reason without a court case or hearing the other side of the story.”
The CIPC could not be reached for comment by the time of publishing.
* Mdluli is a special investigations reporter for Voices360.