Opinionista Xolisa Phillip 26 August 2019

High court brings chartered accountant to book

The fight of Phumlani Zwane, former director of nuclear services group Nectsa, against his delinquency finding has gone against him, in a first for an SOE board member. The latest high court judgment sends the strongest signal yet to SOE directors that derelict conduct will neither go unnoticed nor unpunished. The judgment also creates headaches for Unisa, where Zwane has found a new professional home.

Another chartered accountant (CA) has found himself on the wrong side of the law because of questionable ethics and conduct. CA Phumlani Zwane’s protracted legal fight with the Companies and Intellectual Property Commission (CIPC) has been brought to an end by the North Gauteng High Court in Pretoria, which has declared him a delinquent director.

In the first instance, the delinquency runs from 2014 to November 2019. In the second instance, the delinquency is effective from 8 August 2019, the date of the judgment, and runs for seven years. The court found in favour of the CIPC, which in its three-part application had sought to have Zwane pronounced guilty of wilful misconduct and a breach of trust as a director.

This is the second high-profile scalp that the regulator has claimed in the name of the Companies Act of 2008 in as many years. It won its case against former South African Airways chair Dudu Myeni, with costs. In that matter, the state attorney quietly obtained a writ of execution for a cost order against Myeni in the high court on behalf of the CIPC.

Back to the Zwane saga. He is now CFO at the University of South Africa (Unisa) and represents the institution on the Unisa Enterprise and the Purchasing Consortium Southern Africa.

His troubles began in November 2012, when he was appointed to the board of the South African Nuclear Energy Corporation (Necsa) by the energy minister at the time. During that period, Zwane was the CFO of the National Development Agency (NDA) and deemed a state employee. The then energy minister communicated the Necsa board appointment to Zwane in a letter in which she spelt out the terms, including his preclusion from extracting director’s fees from Necsa.

However, Zwane proceeded to earn the director’s fees from Necsa while simultaneously drawing a salary at the development agency as its CFO. The essence of the case against him is the fact that state employees are not entitled to director’s fees, which constitute a second income. In short, state employees are not allowed to double-dip. What is even more curious about this case is that Zwane declared his Necsa earnings to the NDA in his annual declaration of interest filings.

When the matter came to a head, Zwane went to extreme lengths to evade responsibility for his actions, according to the North Gauteng High Court judgment. These include attempting to obtain permission to serve on the Necsa board from the NDA CEO retrospectively but omitting to obtain permission to be remunerated.

He also argued unsuccessfully that, as an NDA employee, he was technically not in the employ of the state per se. The court was not convinced.

Zwane was removed from the Necsa board in November 2014. In 2015, he petitioned the CIPC and then the high court before the regulator had made a decision on the matter. The high court found against him, and Zwane attempted to appeal his case all the way to the Constitutional Court, without success. A reading of the North Gauteng High Court judgment shows that the judge even asked Zwane to apologise to the CIPC, as a way out, but that was not forthcoming. And so, his fate was sealed.

The CIPC’s application had three parts: the first was the delinquency application made in terms of section 69 (8)(b)(iii), read with section 69 (9)(a), and which would run from 2014 to November 2019.

Those sections of the Companies Act spell out the conditions under which an individual is disqualified as a director. Section 69 (8)(b)(iii) reads: “A person is disqualified to be a director of a company if … [he] has been removed from an office of trust, on the grounds of misconduct involving dishonesty.” Section 69 (9) outlines the duration of a disqualification.

The second part of the CIPC’s application was made in terms of section 69 (8)(a) and part three had to do with section 162 (3), read with section 162 (5)(c), as well as a disqualification under section 69 (8), read with section 165 (6)(b) of the Companies Act.

The high court found against Zwane in terms of parts one and three of the CIPC’s application.

The judgment is significant because it clearly sets out that removal from an office of trust takes effect immediately. This means Zwane should not have been appointed a director from the point of delivery of the first judgment against him.

The judgment sends out a strong message to state-owned enterprises (SOEs) that directors must understand their fiduciary duties and their responsibilities. In addition, the judgment reinforces the fact that appointees to SOE boards are rendering a public service: being on an SOE board is not merely a matter of accruing personal benefits and collecting fees.

It was the first successful delinquency application against an SOE director. History shows that the majority of delinquency applications have been instituted against directors serving in the private sector. Mind you, section 165 of the Companies Act empowers the shareholder representative of SOEs and registered unions, among other parties, to institute delinquency proceedings against directors whose conduct is unbecoming. However, the record shows that none of these parties has made use of this empowering provision, even though the environment is awash with instances that warrant invoking section 165.

Now, questions remain: Did Zwane declare to Unisa that he had been pronounced delinquent by the high court prior to his appointment as CFO at the institution? What is Unisa’s position on the court cases?

Unisa says it is aware of the judgment and concedes that the court decision will have a bearing on the institution and the CFO, but stopped short of spelling out how it would deal with the issue.

It is now the university vice-chancellor’s problem and he has to inform Unisa’s council of a final outcome. Meanwhile, the CFO has been given an “opportunity to reflect on the judgment and respond within a defined period”.

It is an all-round messy situation, and there is nowhere to hide for Unisa or Zwane.

Subsequent to this story being published, Zwane has notified Business Maverick that he has taken the judgement on appeal and that new evidence will be presented that demonstrates the case was wrongly decided. 

BM

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