Arijs is a former funding banker and says as soon as he began investigating how the property deal went incorrect, he instantly recognised the outlines of a fraudulent scheme meant to line the pockets of the financial institution at his expense.
RMB has denied Arijs’s allegations and says it pulled out of the property deal for purely business causes. The financial institution has not filed its reply to Arijs’s claims. Moneyweb will file a follow-up story as soon as it does.
It’s a lengthy and concerned case going again a number of years, with a number of court docket actions continuing concurrently.
The story started in 1998 when Arijs retired from European funding financial institution Ceneca in Belgium and moved to South Africa to pursue property improvement alternatives.
He teamed up with different Belgian buyers and in 1999 launched the Whale Rock residential improvement, a landmark venture in Plettenberg Bay.
Arijs and his companions have been much less fascinated by creating their business properties than squatting on them till they may very well be bought for a good revenue, however that each one modified in 2007 after they have been approached by Dawid Wandrag, then-head of the FirstRand property finance credit score committee, who proposed organising three way partnership corporations to codevelop two properties, each in Plettenberg Bay.
One was a 59-hectare plot the financial institution figured could be ultimate for a resort and residential complicated; the second a 1.Four-hectare piece of prime actual property that RMB, when it comes to a feasibility examine, proposed turning right into a buying centre, boutique resort and residential improvement.
In 2009, two three way partnership corporations have been set as much as develop the properties: Shock Proof Investments and Lighthouse.
RMB arrange a particular function automobile (SPV) referred to as RMB Property Holdco 1 (Holdco) to take up a 50% fairness stake within the two developments.
The financial institution appointed RMB staff as administrators of Shock Proof and Lighthouse, as did Arijs and his South African companions, with the financial institution retaining general voting management.
By this time Arijs had teamed up with some South African companions. They bought properties from Whale Rock and injected these into the brand new cope with RMB, which was to be each funder and fairness associate within the new developments.
The three way partnership and shareholder agreements have been accredited on November 13, 2007 and signed off by Allan Pullinger (then RMB CEO), Willy Robinson, Theunis Bosch, Wandrag, Cindy Veres and different senior executives of the financial institution.
The financial institution invested fairness of R6.three million in Lighthouse, and an extra R6.6 million in Shock Proof, to be supplemented with a mortgage of R4 million on a profitable report of choice from the environmental authorities. Papers earlier than the court docket present the financial institution dedicated to offering any and all funding required for the completion of the developments. RMB’s feasibility research green-lighted the 2 initiatives.
At no time have been both of the 2 JV corporations in default on the mortgage agreements.
Arijs and his companions have been servicing their share of the curiosity on the loans however, astonishingly, 50% shareholder RMB Property Holdco 1 was not – placing it in breach of the JV agreements.
That is admitted by Wandrag in a 2011 e-mail to his colleagues whereby he laments the truth that the financial institution had not saved to its aspect of the settlement and recommends refunding Arijs’s contributions for skilled charges so the venture might keep away from any additional delays.
Arijs uncovers proof of an illegal choice share scheme
What was not recognized to Arijs and his companions on the time, they declare, is that RMB had transformed its fairness claims in Shock Proof and Lighthouse (together with a number of different related property improvement corporations) into choice shares, which it on-sold to buyers for a revenue.
In banking-speak, this is named securitisation, the place belongings corresponding to bank card money owed, mortgage loans or choice shares are packaged collectively and transformed right into a bond, which might then be bought to buyers. By way of the Banks Act there may be nothing incorrect with this, supplied the financial institution doesn’t personal shares within the securitisation SPV.
Securitisation permits banks to transform in any other case sterile or long-term belongings into money, to spice up their stability sheets and proceed lending. Banks use ‘bankruptcy-remote’ SPVs to securitise belongings, since this insulates them in opposition to any contagion which may come up because of default.
Financial institution denies any hyperlinks with its property improvement firm
Right here is the issue: Arijs’s affidavit suggests the financial institution has a direct share in Holdco (the SPV), which has a direct stake in Shock Proof and Lighthouse, and is due to this fact in breach of the Banks Act, the shareholders agreements and good company governance, because the choice share scheme was saved a secret from Arijs and his companions.
Within the strategy of doing this, Arijs claims the land was fraudulently bought from underneath him.
That the financial institution by no means advised him concerning the choice share scheme would additionally violate the Corporations Act since any disposal of belongings have to be agreed by the board and 75% of shareholders.
He says he solely discovered about it via the method of discovery in his numerous court docket actions in opposition to the financial institution.
RMB claims it pulled out of the property deal for purely strategic causes and Arijs initially believed this – till he began tripping up on paperwork that appear to counsel the financial institution had no intention of continuing with the event, even earlier than it began. Shock Proof and Lighthouse have been liquidated round 2014 and the 2 properties bought for about R12 million.
Keep in mind, Arijs is saying RMB was liquidating corporations through which it had general management and was the only creditor.
Arijs’s affidavit alleges that the financial institution’s plan all alongside was to securitise his land (by changing the shareholders’ loans into choice shares), promote these shares for a revenue, liquidate the JV improvement corporations, then declare sureties from the minority shareholders (Arijs and his companions) and stroll away with out a scratch.
In different phrases, Arijs is claiming that this was an elaborate land theft scheme. He’s now claiming about R80 million in damages in opposition to the financial institution.
This kinds the premise of his declare of premeditated fraud by RMB – a declare that has been denied by the financial institution (see beneath).
In a number of court docket circumstances associated to the Shock Proof and Lighthouse issues, RMB’s then-head of credit score restoration Jean du Plessis has denied any hyperlink between RMB Property Holdco and the financial institution. If true, then the financial institution is free and clear so far as the Banks Act is worried.
Bear in mind, a financial institution might not personal shares in a securitisation scheme since this might expose its personal stability sheet to contagion within the occasion of default.
However within the strategy of court docket discovery, Arijs got here throughout a Could 2014 e-mail the place Du Plessis seems to contradict his earlier testimony to the courts.
Writing to his debt-recovery colleagues, Du Plessis discusses numerous choices for recovering the financial institution’s roughly R20 million publicity to each Shock Proof and Lighthouse. He proposes accepting a proposal from Arijs and companions for R12 million for Shock Proof, including that this could keep away from any liquidations prices in addition to any points “in respect of us being a shareholder, director and creditor”.
That’s an admission that the financial institution not solely flouted the Banks Act, but in addition confirms the existence of a “composite settlement” that it had earlier denied existed, says Arijs’s affidavit.
The e-mail seems to place the financial institution slightly than the SPV (Holdco) on the centre of the scheme. It additionally appears like perjury, as Du Plessis claimed earlier than numerous judges that there was no hyperlink between the financial institution and Holdco, and that there was no composite settlement. If there’s a composite settlement, argues Arijs, then the sureties the financial institution is attempting to say are null and void.
No ‘composite settlement’
In earlier court docket filings, the financial institution sought to demolish Arijs’s declare that there was a composite settlement comprising the Shock Proof and Lighthouse shareholders’ agreements, the JV and mortgage agreements between Arijs and the financial institution, and numerous different oral or tacit agreements. The argument claiming there was a composite settlement was thrown out by Decide Nichols within the Cape Excessive Courtroom in 2016, however this was earlier than Arijs found the above-mentioned e-mail and different paperwork that contradict its earlier claims earlier than the courts.
Claims of oppressive conduct
Arijs additionally claims this suits the definition of “oppressive conduct” by a shareholder when it comes to the Corporations Act. He argues in his court docket papers that the financial institution contrived the choice share scheme behind the backs of the minority shareholders, which is the type of conduct Part 163 of the Corporations Act seeks to remove. One group of dominant shareholders might not act in opposition to the pursuits of others.
There are a number of different oddities surrounding the case.
Louis Schnetler and Theunis Bosch, on the time staff of FirstRand Financial institution (RMB’s mum or dad firm), presupposed to act as administrators of the businesses, although no resolutions or letters of appointment by the financial institution have but surfaced. This in itself could be a violation of the Corporations Act.
What later emerged within the strategy of discovery is that Holdco had issued choice shares and ceded the rights to wind up the property belongings to its mum or dad firm, RMB Funding and Advisory, which owns 92.5% of Holdco (the opposite 7.5% is owned RMB Co-Funding Belief), establishing a direct line between the financial institution and the SPV – one thing the financial institution has repeatedly denied existed in numerous court docket circumstances. FirstRand Financial institution and RMB administrators have been found to be trustees of RMB Co-Funding Belief.
That the RMB administrators are accused of concealing all of this from Arijs and his enterprise companions suggests they’re in violation of their fiduciary duties to behave in the very best pursuits of the corporate, to not point out the a number of violations of the Corporations Act, shareholders’ settlement and the Banks Act.
Delays in improvement
The financial institution can also be accused of intentionally delaying the event of the 2 Plettenberg Bay properties, by demanding modifications in design and contractors. This, argues Arijs, lends credibility to the declare that the venture was by no means meant to get off the bottom within the first place. In a September 2011 assembly, Arijs and his companions have been rudely knowledgeable that the financial institution had taken a choice two years earlier to withdraw from the property market. Two years earlier means the financial institution would have determined to exit the property market round 2009, but this was exactly the time it was green-lighting the Plettenberg Bay developments.
The query then arises, why did the financial institution not merely promote its 50% share within the two initiatives and transfer on? An affordable individual would possibly conclude that the financial institution is entitled to vary its thoughts and promote its pursuits within the initiatives, nevertheless it seems RMB was not eager on this both. Arijs approached Investec to sound it out on taking on RMB’s pursuits and loans within the venture.
Investec was reportedly till it obtained an e-mail from RMB’s Schnetler successfully spiking any prospect of promoting its pursuits within the offers.
At this level, it seems RMB resolved to liquidate the property improvement corporations. Arijs alleges that none of this makes any sense until you perceive the financial institution was attempting to cover the existence of an illegal choice share scheme meant to learn senior financial institution executives.
RMB has but to file its plea affidavit within the newest case. Moneyweb will file a follow-up when it does. RMB has additionally accused this author of being exploited by Arijs to advance his “questionable intentions”. This allegation is denied.
The financial institution additionally suggests Arijs disrespected the court docket by failing to show up at a listening to final yr. This must be put in context: Arijs has had no fewer than 4 units of attorneys over time who abandoned him on the steps of the court docket, citing completely different causes together with battle of curiosity.
This isn’t an unusual drawback going through anybody difficult the banks and seems to have little to do with the deserves of the case.
Arijs says RMB could also be higher positioned to clarify why so lots of his attorneys have run for the hills at any time when a court docket date looms.
That his case has benefit has been confirmed by three units of attorneys, together with senior counsel, who at numerous occasions have been engaged by Arijs.
“Rand Service provider Financial institution (a division of FirstRand Financial institution Restricted) is conscious of the accusations made in opposition to the financial institution by Fred Arijs referring to property developments within the Plettenberg Bay space. These property developments by no means progressed for numerous business causes.
“Mr Arijs is aggrieved about RMB’s choice on the time to not advance senior debt to the developments, after RMB made the choice that the initiatives weren’t commercially viable.
“Mr Arijs and RMB are presently engaged in litigation. The trial date was set for 9 Could 2019 and Mr Arijs had the chance to testify publicly about his allegations however did not attend Courtroom. He was punished with a punitive value order by the choose for his disrespect for the judicial system. His senior counsel additionally resigned just a few days earlier than the trial on the premise that Mr Arijs’s case had no benefit.”