Bid to liquidate Sharemax ‘won’t affect’ ombud’s case against ex-directors

Published Sep 20, 2014

Share

The application by the South African Revenue Service (SARS) to liquidate Sharemax will not affect the financial advice ombud’s argument that the former directors of the property syndication promoter should be held personally liable for investors’ losses, the ombud’s office said this week.

SARS applied in the North Gauteng High Court for the liquidation of Sharemax on the grounds that it owes SARS R15.6 million in unpaid taxes and has not complied with business rescue proceedings as set out in the Companies Act.

Sharemax has asked the court to dismiss the application on procedural grounds. It says that one of the investors in the syndication scheme who has a ruling in her favour from the ombud is a creditor but has not been included as a respondent in SARS’s application.

Noluntu Bam, the Ombud for Financial Services Providers, told Parliament last week that some 2 000 of the 34 000 investors in Sharemax have complained to her office.

In her initial rulings, Bam held brokers who advised investors to invest in the scheme liable for the losses stemming from their inappropriate advice.

In two later cases, she held the former directors of Sharemax and the “masterminds” of the scheme liable for investors’ losses. These rulings have been challenged, and the Appeal Board of the Financial Services Board (FSB) has granted the former directors of Sharemax leave to appeal in both of the cases in which the ombud held them liable. The appeal is due to be heard in January next year.

The former directors argue that they cannot be held liable, because Sharemax was put into business rescue and there was a High Court-sanctioned “scheme of arrangement” involving the transfer of the assets in Sharemax to Frontier Asset Management.

The ombud’s office does not agree with the view that this absolves the directors of liability.

Ashley Percival, the assistant ombud at the Office of the Ombud for Financial Services Providers, told Personal Finance this week that, although the ombud’s office cannot speculate on the outcome of the Appeal Board case, it stands by its rulings that hold the former directors personally liable.

The potential liquidation of Sharemax will not affect this argument that the directors are personally liable for the losses, Percival says.

SARS’s argument in its court application that Sharemax’s business rescue proceedings did not comply with the Companies Act supports the ombud’s argument, made in her rulings, that putting the company into business rescue was a stalling tactic designed to frustrate investors, he says.

Last week, Bam told Parliament that her office cannot issue further determinations on complaints relating to Sharemax until the Appeal Board decides on the former directors’ appeal application.

In a separate challenge to her authority to hold financial advisers liable for recommending Sharemax, Bam is facing a High Court application from an adviser, Deeb Risk, whom she held liable for the losses of seven Sharemax investors.

Risk previously challenged the ombud’s rulings in court but was referred to the Appeal Board, which refused to hear new evidence.

Risk then reached a settlement with five of the investors, but the two remaining cases are the subject of his latest court application, which the ombud’s office is opposing.

Related Topics: