Wednesday, February 22, 2012

Sharemax: Big bucks for syndication directors

Special Investigations
Author: Julius Cobbett|21 February 2012 15:45 Sharemax: Big bucks for syndication directors

Fees of R4.3m paid on top of normal salaries. Reserve Bank’s concerns revealed.
JOHANNESBURG - Directors of the Sharemax syndication companies have been well paid for their efforts to restructure the schemes. In total five directors stand to make R4.3m, mostly for consulting services billed at R1 500 an hour.

For the two executive directors, Dominique Haese and Dirk Koekemoer, this money is paid over and above normal salaries received from Sharemax successor Frontier Asset Management. Haese’s salary at Frontier is R80 000 a month. Frontier is the company that manages and administrates the old Sharemax property portfolio. For this work it collects a percentage of assets under management.

The amounts paid to directors are disclosed in rescue scheme circulars which were sent to all 34 000 investors of Sharemax syndication companies. When the circular was compiled, R2.5m had already been paid to the five syndication directors, and a further R1.8m was budgeted, bringing the total to R4.3m.

Haese had already received R1m for consulting fees. Koekemoer had received R780 000. Accountant Rudi Badenhorst, who is supposed to be an independent, non-executive director of the syndication companies, was paid R600 000 for his consulting services. For each of these three directors, a further R500 000 was budgeted.

An amount of R240 000 has been budgeted for the chairman of the syndication companies, retired judge Willem Hartzenberg. An amount of R76 000 was budgeted for independent director Koos Maartens. A portion of this amount had already been paid.

It appears that no payments were made to former independent director Dawie Roodt, who resigned in July last year.

Reserve Bank concerns

Moneyweb can reveal that the Reserve Bank-appointed statutory managers, Jaco Spies and Neels Alant, raised a number of concerns about the directors’ income flowing from consulting services. These managers were appointed to ensure the syndication companies’ compliance with the Banks Act. They were relieved of their duties earlier this month, after investors voted in favour of the rescue scheme and it received court sanction.

Initially, Haese, Koekemoer and Badenhorst used entities to invoice the syndication companies. An example of these invoices can be downloaded here.

Haese invoiced in the name of a sole proprietorship called D. Co Financial Services. Koekemoer used a close corporation called Ruwach Properties and Investments. Badenhorst used his firm, Badenhorst Auditors and Accountants.

This use of entities did not sit well with the statutory managers. In May last year statutory manager Jaco Spies instructed Haese not to “make any payments to director-related entities”.

Later that month, Spies’s co-manager Neels Alant wrote to Haese: “Based on independent advice Jaco Spies and I have identified a number of concerns relating to the remuneration of directors and which concerns require the board’s urgent attention.”

Alant continues: “We have conveyed these concerns to the Chairman [retired judge Willem Hartzenberg] and have also decided to postpone decisions on whether or not to consent to any of the payments that have been claimed by directors or their entities thus far.”

With the advice of an independent legal firm, it was later agreed that the directors’ fees were to be fully disclosed in the scheme circulars. The directors also agreed to claim remuneration in their personal capacities, and not through corporate entities. Invoices in the names of the directors’ entities were cancelled and never paid. New invoices were prepared in their personal capacities.

Long hours
The invoices mentioned above show how the directors put in long hours for their work on the rescue scheme.

Haese’s sole proprietorship, D. Co Financial Services, submitted an invoice for March to the Sharemax syndication companies for R120 000. Haese billed her services at R1 500 an hour, which means she worked 80 hours. Assuming a 160 hour work month, this left just half of her available time for full-time employer, Frontier.

Haese says this indicates that she worked many late hours and lots of overtime.

Koekemoer’s close corporation, Ruwach Properties and Investments, invoiced for 69.5 hours totalling R104 250.

Badenhorst’s firm issued an invoice R103 500 in March 2011 for 69 hours of consulting services.

If you think these directors were burning the candle at both ends, spare a thought for Connie Myburgh, for whom 250-hour work months are not unusual. In just one week, 23-29 April, which included a 21-hour work day, Myburgh billed Sharemax investors a total of 102 hours. Myburgh’s rate is R3 000 an hour. (See the details of the invoice below this article.)

The rescue scheme’s piggy bank

But the statutory managers’ concerns did not stop at director remuneration. They were also worried about the manner in which the Sharemax rescue scheme’s costs were to be funded.

To pay the millions that the Sharemax rescue scheme would cost, the directors needed cash, which they sourced from one of Sharemax’s better-funded growth syndications, Country View.

Not that Country View, a proposed retirement resort, was in good financial health; it simply had not yet spent all of the R83m it solicited from public investors. This made it an attractive piggy-bank to fund the rescue scheme.

Once Country View had received the R83m from its investors, sometime in 2007, it loaned the money to a private company called Planet Waves 110. Such loans were standard procedure for Sharemax’s 12 growth syndications (see Sharemax’s black hole syndications).

Around April last year, Haese and her co-directors, with the assistance of corporate lawyer Connie Myburgh, created a R5m loan facility, which they used to borrow money from Planet Waves to fund the Sharemax rescue costs. This loan is to be repaid by all syndication companies on a pro-rata basis.

The Reserve Bank was concerned that this loan might be illegal. In May the Reserve Bank’s Michael Blackbeard informed Chairman Willem Hartzenberg that the Bank was concerned about the loan’s legality. A copy of this letter can be downloaded here.

Haese says that the board of directors obtained external legal advice, which caused the loan to be structured and implemented in such a manner that the concerns raised by the statutory managers and the Registrar of Banks were addressed, and subsequent approval was granted for the incurring and implementation of this loan.

Blackbeard instructed Hartzenburg and his co-directors not to exceed the original loan limit of R5m. However, when it came to the Reserve Bank’s attention that the limit of R5m may be exceeded, it took the drastic step of freezing the Country View cash.

In an e-mail dated June 7 last year, Alant informed Haese that her wings had been clipped: “I have exercised stricter control over the investment account held at Mercantile Bank in the name of Planet Waves 110 (Pty) Ltd,” he wrote. “The bank has accordingly been instructed not to allow the withdrawal of funds held on behalf of Planet Waves 110 (Pty) Ltd.”

Future withdrawals required Reserve Bank approval.

Haese says that at no time was the R5m exceeded: “In fact a further agreement was entered into requesting a provision for further funding and approval was given by the Reserve Bank thereon after due consideration.”

The cost of the rescue scheme has been budgeted at R19m. The single biggest item is legal fees.

Says Haese: “One needs to consider that R19m divided by 34 000 investors equals R559 per investor, nothing in terms of potential astronomical – and now avoided – liquidation costs, where investors would have been left with nothing.”

Coenie Willemse, a lawyer representing the directors, stated on their behalf that without the Planet Waves loan it would not have been possible to implement the various steps of the Section 311 scheme of arrangement. (Click here to download Willemse's full unedited response)

“Every one of the legal entities in the Sharemax syndication group of companies, is obliged to, in terms of the approved loan agreement, contribute its share of this funding on a weighted pro-rata basis.

“This loan is based upon an approved valid and binding loan agreement, which will provide Country View with a better return as previously,” Willemse said.

A copy of this article was sent to Willemse, lawyer for Haese, Koekemoer and Myburgh last week.

Willemse’s full unedited response to the article can be read here.

A week in the life of corporate lawyer Connie Myburgh


Attend to drafting scheme documentation

pertaining to Income Plan project. (4 hours)
R 12,000

Attending to further drafting of scheme
documentation. (8 hours)
R 24,000

Attend to drafting further documentation

pertaining to Villa and Income Plan documentation,

attend to checking documents as tracked,

amending same and further processing, attend

to numerous telephone calls with various parties

for purposes of collecting and checking

information for purposes of incorporating into

documentation, attend to discussing various

aspects of structures and documentation with

counsel and Mr Derek Cohen. (16 hours)
R 48,000

Attend to further drafting of documentation,

checking of documentation and various

discussions with various parties in regard to

various aspects of structures and documentation

being prepared. (19 hours)
R 57,000

Further preparation of documentation, including

finalising documentation pertaining to Villa

project, attending to Mrs Cohen, Rembe and

Badenhorst during consultation when financial

aspects of Villa transaction discussed, debated

and incorporated into final Villa documentation,

attend to arranging signature of Villa documentation,

finalising , all Villa documentation, including

pagination and the like, copies and the like, and

procuring dispatched to Pretoria and issuing at

Court for purposes of hearing the matter at 10h00

on Friday, 29 April 2011, attend to further intensive

drafting after discussions with various parties

providing information, and in particular, attending

to the checking of numerous documents having

been prepared and typed, attend to extreme urgent

drafting of documentation pertaining to Income

Plans project, including discussions in regard to

financial aspects thereof with various parties,

including Messrs Cohen, Badenhorst and

Koekemoer. (20 hours)
R 60,000

Attend to finalising Villa documentation and

procuring filing at Court, attend to working further

on extreme urgent basis in regard to Income Plan

documentation, including discussions in regard

thereto, both with regard to structure and financial

implications. (21 hours)
R 63,000

Attend to discussing Villa transaction with

counsel for purposes of briefing counsel for

hearing of the Villa matter in Court, attend to

finalising Income Plan matters under great urgency,

attend to procuring the signing of Income Plan

matters and documentation, attend at Court when

counsel briefed and matter heard in Court, attend to
assisting counsel in Court when order with regard

to Income Plans transaction granted, attend to

travelling back to Johannesburg, attend to further

drafting of documentation required for Income

Plan matters, attending to perusing documentation

and finalising further drafting, attend to further

checking of documentation and discussing of

various aspects of documentation and structures

with Mr. Badenhorst, attend to discussing Villa

transaction with Counsel and finalising. (14 hours)
R 42,000

R 306,000


1 comment:

  1. The Regulators still failed to Act Against ACT Solutions.
    Everybody is acting as if nothing is wrong!