Cape Town | Saturday
TWO chief executives from LeisureNet, the holding company of the former Health and Racquet Club gym group, were arrested by the elite crime busting unit, the Scorpions, in Cape Town on Saturday evening.
Scorpions representative Sipho Ngwema said that joint chief executives Peter Gardener and Rod Mitchell were granted R1-million bail each in the Wynberg Magistrate’s Court on Saturday evening.
”Gardner handed himself over to the Scorpions and Mitchell was arrested at Cape Town International Airport,” Ngwema said.
The two men will appear in the Wynberg Magistrate’s Court on Wednesday.
Ngwema could not confirm whether Mitchell was trying to skip the country.
The two men face charges of fraud and income tax and vat evasion.
In October last year LeisureNet’s former international treasurer Wendy Addison told a commission of inquiry investigating the company’s multi-million rand collapse in October 2000 that Gardener and Mitchell had used the company as a personal bank, eventually leading to its collapse.
At the time of its collapse, LeisureNet operated 85 Health and Racquet Club gyms with more than 900 000 members and 5 400 full-time and part-time employees.
Many people who had entered into 10, 20 and even 40-year contracts were left with worthless pieces of paper.
The gyms have since been sold to Richard Branson’s Virgin Group and rebranded Virgin Active gyms.
According to an article in the Cape Times newspaper Addison testified that Mitchell and Gardener had charged personal expenses – including home renovations, house purchases and travel and foreign exchange expenses for their children – to LeisureNet.
Addison gave evidence that Gardener was also the chief architect of a scheme that would garner LeisureNet about R30-million from running a double debit for gym membership fees every December since 1996 in order to pay its company tax on stated profit.
Despite declaring a R177-million profit in 1999, the company had only R3,4-million in cash, Addison said.
The inquiry also heard evidence that two companies controlled by Mitchell and Gardener were recipients of the deal.
Counsel for the liquidators of LeisureNet, Gavin Woodland, told the commission in June that contrary to a ”solemn promise” made by LeisureNet founding fathers Peter Gardener and Rod Mitchell that LeisureNet would only expand overseas via the franchise route, they bought a 57.8% stake in Healthland International.
This company, registered in Malta, had 17 subsidiaries that owned 22 operating health clubs in the United Kingdom, Spain, Germany, Austria, Sweden, Switzerland and Australia, as well as a further 17 clubs under development.
With that acquisition by LeisureNet the group expanded rapidly with financial commitments of more than R1,3-billion and an increase in interest-bearing debt.
”This is an operation that grew uncontrollably and consumed cash and had to be fed at an alarming rate. This was eventually one of the principal causes of the collapse of LeisureNet.” – Sapa