Afristrat is contravening the Companies Act

Financially-stressed JSE-listed financial services company Afristrat Investment Holdings Limited, which is awaiting judgment on an application to liquidate the company, has been operating in contravention of the Companies Act for more than 38 weeks.

Afristrat announced the resignation of its external auditors Nexia SAB&T with immediate effect on 12 August 2022, and to date has failed to appoint new external auditors.

Paballo Makhetha, a spokesperson for the JSE, said on Thursday that the JSE Listings Requirements do not make specific provision for a time period in which an issuer needs to appoint an auditor as it is regulated by statute.

“In terms of the Companies Act, a company has 40 days to appoint a new auditor,” she said.

Deadline missed

This provision in the Companies Act means Afristrat should have appointed new auditors by 21 September 2022.

However, it has been more than 38 weeks since the 40-day deadline expired.

Afristrat CEO George Manyere told Moneyweb on Saturday that until the judgment to the application to liquidate the company has been issued, “all those things are pending”.

Manyere said it is impossible for Afristrat to appoint new auditors while a minority shareholder is trying to put the company into liquidation.

“That is the simple explanation. We have to wait until all of that is done,” he said.

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Manyere was guarded in his comments when asked if Afristrat had new external auditors lined up if the liquidation application is unsuccessful.

“I can’t say anything. We have to wait [for] the judgment. There is nothing happening until that is done. We have to respect the courts so we have to wait until that judgment is issued,” he said.

Judge Gregory Ally reserved judgment in an application to provisionally wind up Afristrat filed by a single minority shareholder, Jienie-Michelle Dreyer, in the Pretoria High Court on 9 June 2023.

Nexia’s reasons for opting out

When Nexia’s resignation as external auditors was announced, Afristrat said the firm cited the following reasons for its decision:

• Instability in the financial reporting and accounting functions throughout the foreign subsidiary entities within the Afristrat Group;
• Significant delay in the finalisation of the audit of the foreign subsidiary entities by the respective component auditors;
• Significant doubt around the group’s ability to continue as a going concern, evident from its “existing liquidity and solvency position”;
• Concerns about the level of recoverability of the audit fees given delays in payment of historical audit fees; and
• The JSE’s suspension of Afristrat’s listing.

Afristrat said at the time that while Nexia’s resignation would unfortunately have a further negative impact on the release of Afristrat’s audited annual financial statements for the year ended 31 March 2022, the board had started the process of appointing new external auditors.

The board said it would advise shareholders once the appointment had been confirmed, as well as the expected timeline of the release of its annual results.

Failure to comply with JSE rules

The JSE suspended trading of Afristrat shares from 5 August 2022 because the company did not submit its annual report within the four-month period following its year-end, as stipulated in the JSE Listings Requirements.

In an answering affidavit to the liquidation application, Manyere said the delay in finalising the audited financial statements was a direct result of the liquidation of the MyBucks Group and its failure to provide auditors with the required information for incorporation in Afristrat’s financial statements.

Read: JSE suspends trading in Afristrat shares

MyBucks was a microlender with a presence in several southern African countries that collapsed and is now in liquidation

“I have no doubt that if there was anything more to it, the JSE would not hesitate to take appropriate action,” said Manyere.

“The mere fact that the respondent [Afristrat] was merely temporarily suspended until such time as the audited financial statements are lodged with the JSE, is a clear indication of the isolated issue and the temporary effect thereof on the trading of the respondent [Afristrat] on the JSE,” he said in his affidavit.

Bankruptcy

Manyere said Afristrat’s exposure to MyBucks totalled R1.2 billion and despite all its efforts it had not been possible to save the MyBucks Group.

“On 24 December 2021, the Luxembourg tax authorities placed MyBucks Group into bankruptcy and after various court appeals for the lifting of the bankruptcy to allow the turnaround efforts that were pursued up to April 2022 [to proceed], MyBucks Group is now being wound up under the court sanctioned bankruptcy,” he said.

Manyere said the majority of Afristrat shareholders are in favour of a recapitalisation plan to allow the company to trade itself out of its current financial difficulties.

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Dreyer claimed in her founding statement in the liquidation application that Afristrat has received and apparently invested “well in excess of R2.3 billion” in funds from mainly elderly pensioners.

Provisional liquidation

She said a provisional liquidator would be best placed to make all the necessary inquiries into Afristrat’s assets and liabilities and to report to the court on the best interests of the many vulnerable pensioners whose funds have been placed into Afristrat.

Advocate Jean Berdou, appearing for Dreyer, said Afristrat is not in a position to settle its obligations as they become due and this was never communicated to the shareholders or the JSE.

Berdou said Manyere, who is also a former director of MyBucks, seeks to completely play down its JSE suspension by stating it is merely temporary and insignificant, for a simple failure to file annual financial statements in time.

“But this suspension from the JSE is a serious situation. It’s obvious that your shares become of no value, not tradable, and so many other knock-on effects,” he said.

“But the way the respondent [Afristrat] waves this aside and gives the impression that – ‘It’s okay, we’re going to find auditors and we’ll sort this all out’ – that in fact hasn’t happened.”

Audit process questioned

Berdou said what is even more problematic is Afristrat’s statement that it is currently engaged in the audit process but fails to explain how this is possible without a chief financial officer or auditors.

“The representation made to court that we’ve got this under control is impossible because without auditors you can’t audit and those submissions made by the respondent [Afristrat] are unacceptable. They are simply not factual. So we have a company who at best is still trying to find an auditor but they can’t be doing the audit process.”

Read: Afristrat to face liquidation music

“If you look back to the submissions of the previous auditors when they resigned, it will be a very difficult process for any new auditor to come in and resolve all of those [issues] in any event.

“And until all those issues have been resolved, which could take one month, it could take several years. Who knows? The fact remains that this company is going to remain suspended,” said Berdou.

“It cannot be in the best interests of its shareholders that it remains in such a state for whatever period of time because they [shareholders] then are all prejudiced.”

Adequate action

The JSE’s Makhetha said the JSE Listings Requirements make provision for the JSE to suspend the trading of a company’s instruments if the issuers fail to publish its financial results within the required timeframes in the requirements.

Makhetha said the requirements do not however include any specific limits on the period for which the trading of the company’s shares can be suspended “irrespective what the reason is for the suspension”.

“However, the requirements make provision for the JSE to remove the listing if the issuer fails to take adequate action for the JSE to reinstate the listing within a reasonable time period,” she said.