Numsa at war with itself over investment company
Financial difficulties facing a business owned by the National Union of Metalworkers of South Africa (Numsa) have exposed tensions in the country’s largest union. They pit general secretary Irvin Jim against those in the union who question the role of his ally, Numsa Investment Company boss Khandani Msibi.
The crisis facing a subsidiary of the Numsa Investment Company (NIC) has resurfaced questions about the influence NIC chief executive Khandani Msibi is alleged to have over Numsa and its general secretary, Irvin Jim – as well as about the political role Msibi plays using company resources.
The latest fallout within Numsa ensued after 3Sixty Life, the NIC’s life insurance arm, was placed under curatorship in December 2021 by an order of the high court.
The conflict among Numsa leaders was laid bare in a letter written by Numsa National Office Bearer (NOB) Ruth Ntlokotse after Jim rushed to court in support of 3Sixty management’s attempt to halt the curatorship.
Jim’s critics allege that he did not have a mandate from the union and is failing to act in workers’ interests.
They claim that his court intervention was motivated more out of concern for Msibi than for Numsa members, many of whom are 3Sixty policyholders and therefore potentially at risk of the insurer failing to pay claims.
Division in the union over Jim’s backing of Msibi has allegedly led Ntlokotse to go into hiding.
Meanwhile, questions around Msibi’s role have become more acute since it emerged that he had used another 3Sixty subsidiary to make substantial party political donations to Mzwanele Manyi’s African Transformation Movement, the EFF, Good and the ANC.
Jim has dominated the country’s largest union since winning the general secretary position in 2008 (allegedly with Msibi’s help) but is facing an elective congress set for June 2022.
Through a spokesperson Jim denied that differences over curatorship had led to a conflict at the top, saying the decision to oppose the curatorship in court “was supported by all the National Office Bearers (NOBs) of Numsa and therefore it did have the support of the union”.
The claim of unanimous support appears irreconcilable with the letter from Ntlokotse, the union’s second deputy president.
Jim went on to say: “It is false to claim that the General Secretary acted without the support of the NOBs. The issue of 3Sixty is one which affects our members and it would have been irresponsible for the union not to act.”
Numsa did not respond to detailed questions, but spokesperson Phakamile Hlubi said:
“We have noted your questions. We wish to place on the record that the deposing of an affidavit on the NIC’s application to challenge the placing of 3Sixty Life under curatorship, is a position that was supported by all the National Office Bearers of Numsa and therefore it did have the support of the union. It is false for anyone to claim that the General Secretary of the union acted without a mandate of the union.
“The issue of 3Sixty is one which affects our members and, as a union, we are deeply concerned. It was correct that the General Secretary depose an affidavit to protect the future of 3Sixty life, and oppose it being placed under curatorship, cognisant of the fact that there are no guarantees that it will not be liquidated if it remains under curatorship.”
Hlubi said the union would not comment on other aspects of the story “until this case has been fully ventilated in court”.
Msibi would not respond to detailed questions and accused amaBhungane of being used in a factional fight within Numsa. He has mounted a campaign to portray the curatorship as ill-founded and possibly tainted by ulterior motives.
3Sixty Life was placed under provisional curatorship in December 2021 after the Prudential Authority (PA) approached the Gauteng Local Division of the High Court on an urgent basis.
The PA is the regulator of financial institutions under the administration of the Reserve Bank.
The application was made ex parte, meaning that the company was not afforded an opportunity to present its case, and a return date was set for 22 April 2022 to allow 3Sixty to argue why the provisional curatorship should not be made final.
3Sixty Life underwrites life and funeral insurance policies mainly for clients of Doves and Numsa members. It is owned by the NIC through 3Sixty Global Solutions Group, which wholly owns the Doves Group, which in turn owns 100% of 3Sixty Life.
The union investment holding company, the NIC, is wholly owned and overseen by the union’s National Manufacturing Workers Investment Trust. The union in effect markets policies to its members, and acts as policyholder for a compulsory Numsa funeral scheme.
In court papers, 3Sixty has hit back at the Prudential Authority, claiming the latter’s case is “ill-informed and misleading”.
Jim backed Msibi, and deposed to an affidavit on behalf of Numsa, the second respondent in the case. In his affidavit, Jim writes that, although he has “no knowledge of 3Sixty’s financial position”, “there is no risk to policyholders”.
Jim says 3Sixty’s ability to continue honouring claims is evidence of this.
“The Prudential Authority’s assertion that the interests of policyholders are at risk is at best reckless as it is not substantiated by anything.”
In his supporting affidavit, Jim claims that “various meetings were organised” between Numsa and 3Sixty.
“At these meetings, the management of 3Sixty informed us of the solid plan that it had in place in order to achieve financial soundness and that, in fact, curatorship is unwarranted. We were satisfied with the explanation given to us.”
However, the 7 February letter from Ntlokotse, the NOB who criticised Jim, contradicts some of Jim’s claims.
Addressing the union’s other NOBs, Ntlokotse states: “I place it on record that I have never been invited to such meetings and was never part of any feedback about the outcomes of those various meetings the GS talks about.”
The letter alleges that Jim never shared his affidavit with the national leadership. “I only got the documents of the application through the court records like any other person,” writes Ntlokotse.
“Since this is a serious matter which involves an investment company that Numsa established through the Trust, Numsa national office bearers should at least have discussed this curatorship or convened a special national office bearer meeting immediately after the court ruling in December 2021 to discuss how Numsa should approach this issue.”
amaBhungane understands from Numsa sources that Ntlokotse is in hiding over fears for her safety. She is said to have been threatened after dissenting from the position of other leaders.
Several Numsa and NIC insiders who spoke to amaBhungane on condition of anonymity said they believe the interests of policyholders are at risk, and that Jim appears to have ignored their interests in rushing to Msibi’s side.
The insiders say that if the insurer is facing a solvency crisis, Numsa members who hold insurance policies stand to lose, and curatorship might be their best protection.
The extent of the risk facing policyholders is hotly disputed but among ordinary union members there appears to be a growing sense of frustration over the investment company and its subsidiaries.
An affidavit by Suzette Vogelsang, head of the banking, insurance and financial markets infrastructure department at the PA, deposed to in the curatorship matter, provides some backing for these concerns – though many of her findings are contested by Msibi and, controversially, by the person initially appointed as provisional curator (see sidebar).
Vogelsang’s affidavit contains a range of allegations of mismanagement, including “inflated directors’ fees” and “unexplained transfers from 3Sixty’s bank accounts to various group entities that are not governed by outsourcing agreements not commensurate with services provided”.
The most contentious allegations in the court case centre on premiums, claims and complaints from policyholders.
According to Vogelsang’s answering affidavit, the provisional curator found that 3Sixty teams were rejecting certain claims for “illegitimate reasons”.
The affidavit states: “The Ombud’s office disclosed to the provisional curator that claims worth R1.2-million have not been paid and a significant portion of this dates back to the period prior to curatorship. The Ombud’s office is of the view that the bulk of these claims have not been paid because of incompetence at 3Sixty.”
There has been a steady stream of complaints from policyholders over the years. Reports from the Ombudsman for Long-term Insurance for 2019 and 2020 are telling – 3Sixty tops the list of companies which were sent second reminders for having failed to respond, or having inadequately responded to complaints. In 3Sixty’s case, a very high proportion of complaints were found in favour of the complainants.
It is Jim’s claim about there being no complaints from policyholders that has particularly irked some Numsa members.
In his supporting affidavit, Jim claims: “Since the advent of the Covid-19 pandemic at the beginning of 2020, more specifically from around March 2020, Numsa is not aware of complaints by any of its members on any delay in payment or a complete non-payment of their benefits.”
This elicited a firm rejection in Ntlokotse’s letter to the national leadership.
She writes: “I wish to remind the leadership that, as [national office bearers] we have all received many different complaints from members who were not paid their funeral claims, either late or not paid at all and therefore the statement in the General Secretary’s supporting affidavit is not true.”
Ntlokotse goes on to list several examples, noting that “the complaints predate Covid-19 pandemic” and “some of the big companies have cancelled their [Numsa Financial Services] stop orders due to poor service and non-payment of claims by NFS/3sixty life”.
In an apparent attempt to contain the fallout, Jim addressed a letter to all Numsa staff and elected officials, noting that the “matter concerning 3Sixty Life has become a topical issue within the ranks of the union”.
Jim said that national leadership took the view that the 3Sixty matter was being “used as free ammunition by those who consider it as an opportunity for political mobilisation in the build-up towards Regional Congresses and the National Congress taking place in June 2022”.
He said his court intervention was “correct”, and that 3Sixty Life, as a union asset, had to be protected from potential liquidation.
Jim also called on “all structures of the union and all its leadership at all levels of the organisation and staff to cease and to stop any form of further communication, verbal or in writing, on this matter as it is a matter that is currently within the courts of our land”.
Jim’s plea appears to have done little to defuse the situation.
The latest volley of criticism directed at him came from local union leaders in the Eastern Cape who have accused Jim of “perjury”. The region has been a political thorn in Jim’s side for years, and leaders from the province have been particularly vocal in their criticism of Msibi.
In a letter dated 23 February, the local leadership of Gqeberha, a Numsa stronghold, also questioned Jim’s claim that Numsa had not received complaints from policyholders.
“We are quite curious as the Local Leadership, as others are, as to what interest does Comrade Irvin Jim represent in his affidavit when we, who interface with workers on a daily basis, are faced with complaints about 3Sixty Life’s poor services.
“The very affidavit of the General Secretary represents an attack against us as policyholders and our members who belong to 3Sixty Life. By supporting the founding affidavit of Khandani Msibi, the Numsa General Secretary has actually acted in the interest of a company who has rendered a poor service to Numsa members.”
The letter slams the union’s national leadership for “sitting with our complaints dating back from 2019 about 3Sixty Life” yet being “party to court proceedings that are not in the best interest of Numsa members”.
The Gqeberha leaders warned that if they had not received a satisfactory response within 72 hours, they would be “duty bound” to apply to be part of court proceedings “in explaining our painful plight and experiences with 3Sixty Life with concrete evidence as opposed to the deposition of the General Secretary of Numsa in his affidavit”.
amaBhungane was not able to establish if they followed through on the threat.
Msibi and Jim
Detractors of the two men claim that under Jim’s leadership of Numsa and Msibi’s tenure as head of the NIC the investment company has become the tail that wags the union dog.
They allege that Msibi has abused his authority and treats the union as a subsidiary of the investment company. They claim that the blurring of boundaries between the union and its investment arm have become a point of tension within Numsa and that Jim’s alliance with Msibi has driven a wedge through the union’s leadership.
Emblematic of the concerns about the relationship is the revelation, first reported this week by GroundUp, that Jim scored a R40,000 birthday party, and his daughter a laptop, thanks to donations by 3Sixty Life.
These transactions were among payments in 2018 revealed by a 2020 investigation report by auditing firm Deloitte, which delved into 3Sixty Life expenses including R20-million in “sponsorship” and R358,000 spent on “Numsa support”.
This report has come to light as part of the court record.
Msibi is a prominent and politically vocal social media personality and appears to be associated with the loose alliance around former president Jacob Zuma that includes a number of recognisable individuals implicated in State Capture.
He is said to have been close to the head of the Jacob Zuma Foundation, Dudu Myeni, whom he got to know when he worked with her at the Mhlathuze Water authority in KwaZulu-Natal.
The grouping, often referred to as the Radical Economic Transformation (RET) faction, has coalesced in opposition to President Cyril Ramaphosa, but its influence extends well beyond the ANC.
In 2018, amaBhungane reported on allegations that Msibi was behind attempts to draw Numsa into the RET fold, using his influence and NIC resources to promote Nkosazana Dlamini Zuma in her contest against Ramaphosa for the ANC’s top position.
As Numsa approaches its elective congress set for June, arguably more divided than at any time since Jim took over the leadership in 2008, the political climate is heating up. Fuel has been added to the fire since the latest political party funding disclosures published in a report by the Electoral Commission of SA (IEC) earlier in February.
Published under new party funding legislation, the disclosures show that 3Sixty Health Solutions, a subsidiary of the investment company, was a significant donor to multiple parties. The IEC report for the third quarter of the last financial year revealed that the company contributed R2-million of almost R40-million in total private party funding that was declared for the quarter.
Though a seemingly modest sum, the donations from relatively small 3Sixty Health Solutions are on the larger end of the amounts declared. JSE-listed Naspers, for example, donated half that amount.
Health Solutions paid R800,000 to the ANC, R600,000 to the EFF with an additional R150,000 “in kind” contribution, and R200,000 each to the African Transformation Movement (ATM), Patriotic Alliance (PA) and Good.
The ATM, which counts Zuma Foundation spokesperson Mzwanele Manyi as a leading figure, and the EFF are regarded as being broadly aligned with RET interests, at least for now.
It is unclear how much, if anything, the NIC group donated to Numsa’s political party, the Socialist Revolutionary Workers’ Party.
The donations have led some within Numsa to question Msibi’s political intentions. Making matters worse is the decision to fund politicians at a time when 3Sixty Life is struggling financially and the NIC is failing to repay money it owes to the union.
Tensions over the NIC and its executive long predate the curatorship of 3Sixty Life. Over the years, Numsa members critical of Msibi and his executive have raised a catalogue of grievances around alleged mismanagement and abuse of power, some minor, others much more serious.
Among the most contentious are a loan from the union to the NIC and a R95-million preference share payment. The NIC’s debt to the union has been a recurring point of contention over the years.
In late 2012, Numsa began advancing loans to the group in separate tranches that would total about R90-million initially. NIC financial statements for 2017 show that the outstanding balance in that year was around R86-million.
After interest and repayments the debt currently stands at around R116-million, according to internal documents and union sources.
Numsa sources say the loan payment is overdue and if repaid would help ease the financial difficulties the union has experienced during the pandemic. A 6 October 2020 letter from Numsa’s then deputy general secretary, Karl Cloete, to NIC chair Kwandiwe Kondlo notes that the NIC agreed to repay the loan in full by December 2020, though this apparently never happened.
Cloete’s letter also raises objections to a claim by Msibi that the loan was interest free. A signed loan agreement amaBhungane has seen shows that interest was pegged at 8%.
Msibi and the NIC have been reluctant to settle the debt, claiming that Numsa has been underpaying on premiums for years and the NIC has lost out. The premiums, Msibi says, need to be adjusted and brought more in line with market rates.
Cloete noted this in his letter, but said that Numsa would only be in a position to consider increases after receiving claims statistics for the years concerned, as outlined in an agreement with the insurer.
A senior Numsa source said: “The subscriptions of Numsa members was given as a loan to NIC. Instead of funding political parties, NIC should have paid that money to settle the loan. Instead of paying themselves R95-million in [preference] shares, the loan of R116-million should have been repaid.”
A dispute over that R95-million preference share payment has added to union members’ concerns.
When Msibi and his new management team joined the NIC in 2008 the company was facing liquidation and was dogged by allegations of corruption and mismanagement. As an incentive, the new executive team was given 20% redeemable preference shares in 3Sixty Global Solutions, the parent company of Doves, which owns 3Sixty Life.
The preference share payment was to be made from NIC subsidiary 3Sixty Global Solutions Group to senior executives, including Msibi.
Management’s preference shares were held by a vehicle called Eriotrax Investments.
After learning that Global Solutions was going to pay the R95-million to Eriotrax on the basis that the redeemable shares had matured and become payable, two trustees of the union trust acted to try to stop the payout.
A January 2022 lawyer’s letter to Msibi, on behalf of the two trustees, suggested that 3Sixty Global Solutions was in no position to make the payment given the outstanding R116-million Numsa debt which “has been due and payable for a considerable time, but despite demands remains outstanding”.
The letter also pointed to the curatorship of 3Sixty Life and the NIC’s failure “over many years” to pay a dividend to its shareholder, as evidence of the company’s poor financial health.
Such a payout could only be made, the two trustees argued, after a company’s board had applied a solvency and liquidity test, and preference shares may only be redeemed from dividend money.
The two demanded that the R95-million payment be halted until their concerns were addressed. However, amaBhungane understands that the payment was made after Msibi raised the matter with Numsa, saying that former group executives and Eriotrax directors threatened legal action if they did not receive their money.
The lawyer’s letter goes on to criticise the NIC for “failing or refusing to convene annual general meetings, where the shareholder [the Trust] is given the opportunity to interrogate the directors and to hear their reports” and “failing or refusing to furnish the shareholder with the audited annual financial reports of the NIC and its subsidiaries, for the 2019 and all subsequent financial years”.
Msibi has previously countered these types of complaints by accusing certain trustees of collaborating with the NIC’s competitors and being “irresponsible” with information given to them.
“We have found that some of these Trustees do not come with constructive attitude to the meetings and they are disparaging of the CEO and the investment company in public,” he wrote in a December 2021 memorandum to the union.
“For too long we have been quietly observing various activities undertaken by certain Numsa staff members collaborating with our competitors to undermine our business,” the memo warns.
In a separate letter of January 2022, Msibi lists some of the support that the NIC provided Numsa members and staff, including R40-million spent on more than 120 cars for Numsa staff, bursaries and other donations, before threatening that staff who resign from an NIC medical fund in favour of competitors would have their bursaries and other benefits terminated.
Such threats have provoked a furious response from the Eastern Cape’s staff representative, who warned Msibi in a letter not to threaten staff of Numsa, as they “are employees of Numsa and they are not his employees”.
“[Msibi] must know he joined NIC not the other way round or to act as if he owns the investment wing, he is just a CEO of the company and everything that is there belongs to Numsa and the members.”
In their letter of 23 February, the Eastern Cape union leaders allege: “Mr Msibi controls and manages the Trust the way he feels and we cannot but conclude that this is happening with the tacit consent or approval of the Numsa National Office Bearers.”
As the union approaches its congress, set for the middle of this year, when the positions of Jim and the other national leaders will be up for election, the build-up of tension over the NIC and its life insurance subsidiary have become completely entwined with political conflict inside the union. DM
SIDEBAR: RESERVE BANK’S PRUDENTIAL AUTHORITY
In determining whether an insurer has the capacity to absorb market shocks, is solvent and has sufficient capital to pay out claims, the Reserve Bank’s Prudential Authority applies certain formulas. There is a minimum amount of capital an insurer needs to have, and a minimum amount in the event of extreme risk.
The PA found that 3Sixty was below the threshold. It maintains that “the capital held to operate the insurance license was perpetually not sufficient”, and that it gave the insurer a year to rectify this, but 3Sixty’s position only worsened.
These arguments are laid out in an affidavit by Suzette Vogelsang, head of the banking, insurance and financial markets infrastructure department at the PA. Vogelsang says that plans to remedy 3Sixty’s solvency crisis “did not come to fruition”.
“The fact that 3Sixty’s Net Asset Value (NAV) decreased from R29-million in July 2021 to R19-million in August 2021 is a clear indication that there was reason for concern,” reads the affidavit.
Vogelsang says that 3Sixty’s decision to take a R70-million loan from its own “with-profit” policyholder fund in order to avoid defaulting on claims is evidence of 3Sixty’s financial distress.
Though 3Sixty claimed to have paid back R14-million of that amount, Vogelsang says the money was not in fact repaid, but was rather offset against “administration fees” that 3Sixty contends it was entitled to.
Msibi has hit back in an answering affidavit, saying that the PA’s statements were founded on suspicion rather than fact.
He denies that 3Sixty has experienced a liquidity “crisis”, saying that while Covid dealt a blow to the insurance business, and the industry more broadly, 3Sixty only faced a liquidity “strain”.
Msibi says the PA failed to adequately consider plans to recapitalise the business by selling properties owned by Doves – a plan the PA claims was “wholly incomplete” – and accuses the PA of wielding a “destructive regulatory tool”.
He claims that curatorship of 3Sixty would likely lead to its liquidation, as it did for the majority of insurance companies placed under curatorship since 2009.
“The likely outcomes of curatorship” would be the “liquidation of 3Sixty or acquisition of 3Sixty by whomever has funds”, which “will not be in the interest of the public at large as this move will be against the economic transformation trajectory of this country as well as reduced competition in the insurance sector”.
The curatorship matter has been muddied after the PA applied to court for the removal of the provisional curator who was initially appointed to the job, Yashoda Ram.
The PA alleges that Ram misrepresented her qualifications, a claim she has contested in court.
Ram was subsequently suspended by her employer, BDO, but has nevertheless delivered an interim report on the provisional curatorship, with a bold disclaimer that “the opinions of experts from BDO with respect to technical accounting and tax related matters have not been included”.
Ram’s report concludes that “curatorship may have not been appropriate and notwithstanding other allegations put forward by the PA, should be opposed.”
Whether or not curatorship was the appropriate response, those “other allegations” continue to linger.
In the application to have Ram removed, actuary Tinashe Mashoko who the PA wants to replace Ram, says in a confirmatory affidavit that “I attended a meeting on 29 January 2022, during which Ms Ram confirmed that the business of 3Sixty had been mismanaged”.
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