It’s very likely that back in 2018 Japanese technology giant NTT Ltd knew little to nothing about section 10(13) of the Ownership Statement of South Africa’s BEE Codes. Now they might be experts on it.
That’s because the controversial section 10(13) is close to the heart of the legal battle between NTT and six of its former executives (the Gang of Six). The executives used that section to secure ownership of the Dimension Data Campus in Bryanston back in December 2019.
Five years later a Joburg high court judge voided that transaction, describing it as “brazen and dishonest” and ruling that the business had to be handed back to the Japanese company.
Remarkably, the ruling was not down to the seemingly opportunistic use of a little-known section of the unwieldy BEE codes, but because of a conflict of interest that had not been disclosed. In the process of securing ownership of a valuable chunk of property in Bryanston, the Gang of Six never thought to tell their employer that they were actually on the buyer end of the transaction.
The really good news is that those executives (Jeremy Ord, Bruce Watson, Jason Goodall, Grant Bodley, Saki Missaikos and Steven Nathan), who are apparently extremely indignant about high court judge Denise Fisher’s blistering attack on their integrity, have appealed the ruling. They are unhappy not only about the ruling but also about the legal process that was used, which, they say, prevented them from arguing their side of the case.
This is because NTT had proceeded by way of application rather than summons, which means the case was decided on the papers instead of orally in court. This is often the handiest way of resolving a legal battle as long as there’s no material dispute of fact between the parties. If there is a material dispute, the case should go to court.
Well, it now seems, according to the Gang of Six, that there were significant material disputes of fact. In their application to appeal the “void” ruling, the six executives state that for various reasons, “the learned judge ought to have found that the dispute as to whether the transaction was ratified could not be determined on motion”. They are particularly irked that in coming to her decision the judge seemed to rely heavily on unchallenged evidence provided by NTT.
There are good chances an appeal will be granted. This will be great news for the public, who will get an opportunity to see the inner workings of a BEE transaction that currently seems to be little more than a convoluted transfer of wealth to six wily corporate executives. And white, to boot. It’s unlikely to be a pleasant sight.
An appeal would mean the six executives will get an opportunity to answer a lot of questions about a transaction that does indeed look, as Fisher said, brazen. Ahead of the answers the known details around the transaction have helped to confirm the suspicion held by many that business may be more efficient than government, but it is often as dishonourable and self-serving.
Disclosure
On the face of it, it seems that six well placed, wealthy individuals managed to secure ownership of a valuable property by washing it through an accommodating, Black-controlled fund. Remarkably, however, there is nothing wrong with that aspect of the deal, at least in terms of the law.
But what might have been very wrong – though this is disputed by the six executives – is that, for whatever reason, at no stage did they disclose their identity as the beneficiaries of the transaction. Ironically, this doesn’t appear to be a requirement of the BEE codes. But the Companies Act does require disclosure of potential conflicts of interest.
According to the application for leave to appeal, the six executives claim they only decided to buy Didata Campus after NTT had signed the deal to sell it to a fund managed by Sonja de Bruyn’s Identity Property Fund. Amazingly, not only was NTT going to sell to a fund managed by De Bruyn’s fund, believing it was selling it to a consortium of Black women, it was going to provide the finance for it. It was, say the six executives, after NTT made this decision that they decided to invest.
And so, because the decision by the six executives to buy the Campus came after NTT made the decision to sell, they claim they had no obligation to disclose anything to NTT. They claim they were not conflicted at the time that NTT made the decision. It seems that at no stage afterwards did they think they needed to make any disclosure, either. In this they seem to be relying on an impossibly limited interpretation of section 75 of the Companies Act.
NTT says it only found out about the identity of the beneficial owners 18 months later in May 2021 and that was thanks to a whistleblower.
Other judges might be persuaded the investment was indeed a very last-minute decision by the six executives, taken only after NTT had agreed to fund the transaction. Certainly, Fisher wasn’t, describing that scenario as preposterous. The Japanese executives said it was “far-fetched and palpably implausible”.
It may be that the six felt that disclosing their involvement in the Campus transaction would jeopardise their chances of leading the proposed management buyout (MBO) of the NTT South Africa business, which would have been a substantially bigger deal. (The MBO plan was scrapped when NTT found out who was behind the Campus transaction.)
It needs to be said that NTT does seem a bit slack in not finding out who were the actual beneficiaries of its R1.4bn deal. Though, in its defence, not only was Nathan remarkably obfuscatory on this issue, but as even South Africans struggle to get their heads around section 10(13) of the Ownership Statement of the BEE codes, what hope is there for an international investor.
Broad-based BEE?
The Alice-in-Wonderland-style section 10(13) goes all the way back to 2013, when Black fund managers succeeded in persuading Rob Davies, the then minister of trade and industry, to relax some ownership rules. “We’ll never get off the ground if we only manage Black funds,” a lobby group told the minister. And so, advisers dreamed up section 10(13), which essentially states that any money given to a Black asset manager is deemed, for the purposes of the BEE codes, to be 100% percent Black-owned money.
You can see why the Japanese might have struggled to deal with that. Even sections of the BEE industry struggle with it and analysts point out that for all anyone knows, much of the billions of rands that swirl around in these funds, used to snap up “BEE assets”, might actually be controlled by the super-wealthy whites who own the money. Apart from the management fee paid to the Black fund manager (as much as 2%) there’s often not an awful lot of broad-based BEE going on.
But there could be. One BEE analyst tells Currency he knows of a truly broad-based BEE group that uses a Black fund manager to execute deals because it avoids the enormously cumbersome and expensive verification process it would otherwise have to go through. Instead of the empowerment group having to prove the BEE credentials of every one of its small and often rural-based shareholders, it gives its investment funds to a Black fund manager. And, hey presto, the funds are unquestionably Black.
So, section 10(13) isn’t just about creating a politically powerful group of elite fund managers, it can help spread Black empowerment. It just doesn’t seem to do so very much. And there’s certainly little sign that there was going to be much “sharing of wealth with the less fortunate” as a result of the transaction implemented by the Gang of Six.
Given what’s known of the Campus deal it’s difficult to take seriously the indignation of the six executives, who claim in their appeal documents: “We’ve always been and remain fully committed to the achievement of transformation and the sharing of wealth with the less fortunate to redress the wrongs of the past.”
To members of the public their use of section 10(13) looks suspiciously like fronting.
An elite game
One Black fund manager tells Currency that the initial thinking behind section 10(13) might have been well-intentioned but it has become an easy way for Black and white elites to game the BEE system and make loads of money for themselves.
Be that as it may, the fact is the NTT/Didata transaction was in line with the BEE laws and regulations. Presumably this was why the transaction generated the hoped-for improvement in Didata’s BEE rating. It was only a few years later, when the controversy around the circumstances became known, that the improved rating was reversed. It was also why NTT’s legal battle focused on the contravention of section 75 of the Companies Act relating to conflicts of interest.
This of course gets us back to the question: why did the six executives not reveal their identity? Or, as my BEE analyst friend says: “If they’d played it straight, they would have been protected by the codes.”
The appeal, if granted, will give the Gang of Six a public opportunity to answer this, as well as clarify many of the murky details around their transaction. But even if found innocent in terms of the law, it’s difficult to see how they can reverse the damage to their reputations. Significantly, Nathan abruptly resigned from his position as CEO of Capevin Holdings just days after the court ruling was released.
Of course, it’s also an opportunity for the government to clean up the BEE legislation and redirect it to helping disadvantaged Blacks rather than Black and white elites. But that’s probably a long shot.
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