Robert Gumede has hit back at allegations made against him by United Democratic Movement leader Bantu Holomisa, reported in last week’s Mail & Guardian.
Gumede told the M&G that all he was guilty of was being naive in his dealings with British businessman John Sterenborg, from whom he bought Applied Card Technology (ACT), a start-up local smart-card manufacturer.
Gumede alleges Sterenborg misrepresented facts about the company, a claim strongly denied by Sterenborg, who lives in South Africa.
ACT was put into liquidation shortly after Gumede’s Gijima Group gained 100% control. An inquiry in terms of Section 417 of the Companies Act is under way to determine the reasons for its failure.
So far Gumede has been grilled about alleged attempts to undermine ACT so as to facilitate Gijima wresting control of the company from Sterenborg, allegations Gumede has emphatically denied.
On Monday Sterenborg will give evidence and be questioned by Gumede’s lawyers. Both sides have promised fireworks. Previewing the confrontation, Gumede says that in essence he bought an albatross because Sterenborg had failed to keep proper accounts and supply audited financial statements.
ACT auditors Horwath Leviton Boner (HLB) told the M&G that Sterenborg had not instructed them to carry out an audit since the company started trading in about December 1999.
”Neither the auditors nor myself were particularly concerned that we postponed the audit until April-May 2001,” Sterenborg claimed.
”Minnie Theron, the financial manager, needed more time to finalise the books. We had an ’empowerment appointment’ [working with Theron] and she had some problems. But there was no concern. Both the auditors and ourselves were relaxed about the fact we postponed the audit. It was a world-class facility; the accounts were also world-class.”
HLB senior partner Louis de Vries declined to comment on Sterenborg’s statement. He said that all papers had been made available to the Secton 417 inquiry. He added that the firm had been unable to complete an audit begun after the Gijima takeover in August 2001 because of missing information and because former directors and shareholders were unavailable.
Sterenborg claims he offered to assist with the audit, but was never asked to do so.
Gumede told the M&Gthe partial audit revealed an estimated deficit of about R14-million and a possible tax liability. He said those factors made it impossible for ACT, then a Gijima subsidiary, to obtain further funding when its merchant banker, Brait, called up its loans.
Brait then applied for ACT’s liquidation, an action Gumede says was a cynical move to gain control of ACT’s assets, given that the bank had allowed ACT to drift along without meeting its loan conditions when it was under Sterenborg’s control.
Sterenborg says Gumede has only himself to blame.
”He [Gumede] was in such a hurry to buy control of the company, he bought control without any due diligence or investigation, without debtor schedules and so on.
”His team went to HLB to look at the share register. They asked there if there were any audited accounts. They were told ‘no’.”
Gumede denies this and says the sale agreement clearly commits Sterenborg to supply a range of documents, including audited financials and management accounts.
Sterenborg now describes the documents in the agreement as a ”wish list”.
”The agreement says ‘the audited financial accounts’. There were none. Other things they asked for were not available, because they were not there; the management accounts were not available — ACT wasn’t controlled by means of management accounts.”
ACT’s business partners apparently did not share Sterenborg’s lack of concern. As early as December 1998, when Brait concluded an agreement to extend a R12-million loan to ACT, two conditions were included: that ACT provide a ”full set of management accounts on a monthly basis” and that Brait ”would require signed audited financial statements within six months of ACT’s financial year”.
The lack of audited accounts also emerged clearly as a barrier to ACT negotiating an agreement with a foreign technology partner, needed to ensure the supply of computer chips ACT’s card factory needed.
In October 2001 French smart-card company Oberthur wrote to Gumede withdrawing from a proposal to buy into the company. The company cited the results of a review conducted with ACT’s auditors that ”clearly demonstrated the lack of financial governance of ACT prior to Gijima taking over its control”. This opacity was already apparent when Gumede signed a R30-million agreement to buy 26% of ACT in July 2000.
Why did Gumede go in ”blind”? At least part of the answer is possibly to be found in an addendum to the sale agreement that indicates that both parties believed the massively lucrative government smart-card ID tender would be awarded in 2001 — and that Gijima could deliver the card sub-contract, no matter who won.
That tender has still not been awarded, but its potential profits of hundreds of millions of rands still appear to form a potent backdrop to the current claims and counter-claims.