New questions about the role played by liquidator Enver Motala are set to come to the fore when the Section 417 inquiry into the collapse of the Retail Apparel Group (RAG) resumes in the second week of March. The Durban-based clothing retailer was placed in liquidation last May.
Motala has been accused of improperly meddling in the inquiry. Evidence has also emerged that suggests Minister of Justice Penuell Maduna insisted on having Motala appointed as a co-liquidator for RAG, despite the Master of the Pietermaritzburg High Court’s reservations.
Section 417 of the Companies Act allows the Master of the High Court to order an inquiry into the reasons for a company’s failure and to subpoena witnesses to testify before a commissioner.
When the RAG inquiry began late last year, it focused on the role of the consortium of banks led by First National Bank (FNB) that had lent RAG money. The banks later structured a so-called ‘securitisation deal†to protect money that was owed to them, allegedly at the expense of other creditors.
RAG chairperson Brand Pretorius alleged that the banks caused the group’s collapse by suddenly reducing its credit line. He gave his evidence in public, though most Section 417 inquiries are held in camera. Most other witnesses at the hearing have testified behind closed doors.
FNB has hit back since the inquiry was postponed in December by shining a spotlight on Motala, and on his relationships with Maduna and Leon Lategan, the deputy high court master who initiated the inquiry.
Two top bank officials subpoenaed to appear before the inquiry have lodged an urgent application in the Durban High Court for an order directing Lategan to ‘act independently of the liquidatorsâ€, in particular of Motala, whom they accuse of ‘improper involvement†in the inquiry.
They have also asked the court to order the deputy master to inform them whether their evidence will be heard in public, as they have demanded, or in camera and to supply reasons for his decision.
The application is due to be contested by Lategan, Motala and the commissioner of the inquiry, but they have asked for more time to file answering papers.
In his affidavit in support of the application, Theunie Lategan, CEO of FNB Corporate, claims the Master has switched the inquiry from a private hearing to an open hearing and then back again in an arbitrary way that has prejudiced the bank.
He questions the motives for holding the inquiry and the influential role Motala has played. Theunie Lategan alleges that Motala attended meetings with the Master’s attorneys before he was even appointed as a liquidator and was the person who first briefed an advocate representing the Master.
‘Moreover it is of concern that the inquiry is being pursued, not so much at the insistence of the Master who called the inquiry, but by Motala. This is evidenced by the fact that Motala (notwithstanding his own legal representation at the inquiry) seats himself next to the legal representatives of the Master and is seen giving instructions to the Master’s legal team.â€
He alleges that Motala was also responsible for torpedoing a settlement the banks offered that satisfied all the main creditors, including the South African Revenue Service (Sars).
‘Motala asserted that he had seen the Minister of Finance [Trevor Manuel] and that both [Manuel] and [President Thabo Mbeki] had rejected the offer. No reasons were given for the rejection. Nor for that matter was it evident why their approval — as ministers of state with no responsibilities in this regard under the Companies Act or Insolvency Act — had to be sought.â€
The FNB officials were due to start testifying on Friday, but their appearance has been postponed pending the outcome of their urgent application.
Motala is said to be close to Maduna, whose wife reportedly invited him to her husband’s surprise birthday party in December. Industry sources say the relationship provides him with tremendous clout.
Motala has rapidly carved a lucrative niche for himself in the relatively closed — and white — world of the liquidation industry. He has achieved success mainly by gaining the support of unions and of the government, through Sars. Both are often represented in large liquidation proceedings.
Motala has also emerged as a convenient battering ram for Maduna to effect transformation in the industry and to expose the way in which major creditors, such as banks, may manipulate the process to recover from the consequences of their own poor lending or management practices.
Still unexplained is why the minister should collaborate with a particular liquidator to achieve transformation, rather than expedite much-needed reform of the legislation governing the industry or even establish a commission to probe its workings.
Instead, RAG, by Maduna’s own account, was set to be a test case for the liquidation industry. Initially, Motala was not appointed as one of RAG’s provisional liquidators, despite his repeated approaches to the Pietermaritzburg Master and approaches by Sars.
The then deputy master, a Mr Potgieter, rejected Sars’s approach because enough liquidators were already involved and because RAG’s auditors maintained that Sars had no claim on the estate.
Sars then wrote to the minister asking him to intervene, citing a legal provision that allows him to overrule the Master in the case of appointments for final liquidation. The taxmen also pointed out that Motala had successfully secured disputed tax claims of R195-million in a similar matter.
The Master responded with a legal opinion that the minister had no power to intervene in the appointment of a provisional liquidator. Maduna’s alleged response in a night-time telephone call to the Master is detailed in an affidavit by liquidator Stephen Main, which was lodged by the banks in a separate court case to have Motala removed as a co-liquidator.
‘The minister directed the Master to immediately and forthwith appoint Motala, failing which the Master would be acting contrary to the minister’s instructions and would face the consequences. In fact the minister advised the Master that even if he had to get in his car and drive to Pietermaritzburg that evening to issue the certificate of appointment for Motala he must do it.â€
The Master complied.
Maduna has claimed that he holds no brief for Motala, but was merely trying to secure Sars’s interests. His intervention to appoint Motala was overturned by the high court, but the decision is being taken on appeal.
Motala had not commented before the Mail & Guardian went to press.