African Bank Probe Said to Find Directors Failed in Dutiesby
Myburgh report said to question ex-directors' qualifications
Report didn't find fraud, say two who read the document
The final report into South Africa’s first bank collapse in 12 years found directors at African Bank Investments Ltd. failed in their duties to manage and protect the Johannesburg-based lender before its downfall almost two year ago, according to two people who’ve seen a copy of the document.
The report, compiled by advocate John Myburgh and submitted to the central bank in February last year, criticized the bank’s governance and questioned whether directors were suitably qualified to oversee Chief Executive Officer Leon Kirkinis, the people said, asking not to be identified because the report hasn’t been published. No fraud was discovered, they said, without giving details on the report’s recommendations.
Under South Africa’s Companies Act, directors may be held liable for breaches of their fiduciary duties and any losses, damages or costs sustained by the organization. Myburgh’s report contained disclaimers saying it doesn’t constitute evidence, one of the people said. A group of minority investors who lost money when the bank failed have said they plan to sue the former directors of the company, according to filings lodged last month in the Pretoria High Court.
At the time of its collapse in August 2014, seven of African Bank Investments’ 11 board members had no banking experience prior to joining the lender, according to biographies listed in the 2013 annual report. Kirkinis co-founded and ran what was then the country’s largest provider of loans not backed by assets from 1999 until he quit on Aug. 6, 2014. That was four days before the central bank appointed managers to take over the lender and nurse it back to health.
The rescued assets started trading under a new banking license as African Bank Ltd. on April 4. Yields on the company’s $280 million of bonds due October 2020 have declined 87 basis points since surging to a record high on April 8 to trade at 9.67 percent by 3:54 p.m. in Johannesburg.
The South African Reserve Bank is due to release Myburgh’s report on May 12, the Pretoria-based regulator said in a statement on its website on Tuesday. Thirty-seven people were invited to review and comment on the report, which was also sent to Finance Minister Pravin Gordhan, the central bank said.
The Reserve Bank didn’t immediately respond to e-mailed requests for comment. Calls to a mobile-phone number that used to belong to Kirkinis, and which hasn’t been answered since the lender collapsed, didn’t connect. Kirkinis’ lawyer Sharon Wapnick declined to comment on her client’s behalf on Tuesday.
Kirkinis last year started a finance company called UsPlus, which he is running from a suburb in Johannesburg, the Financial Mail, a weekly magazine, reported in its April 21 issue, citing the former CEO. Myburgh didn’t find evidence of criminal behavior and Kirkinis argued that the bank’s collapse was an unfortunate case of business failure, rather than the result of reckless trading, the Johannesburg-based magazine said, citing people familiar with the report. He didn’t return a message left with an employee at UsPlus on Tuesday seeking comment on the report.
Myburgh declined to comment when called about the report’s findings, saying it was up to the Reserve Bank to release the document and that he is bound by confidentiality agreements.
The central bank asked Myburgh to probe the company for reckless, negligent or fraudulent behavior, while also investigating management practices and disclosures, according to the inquiry’s terms of reference. The central bank was compelled to act after the value of soured loans soared and African Bank Investments wasn’t able to raise fresh capital. Shareholders lost all of their investments and bondholders were forced to take haircuts following the lender’s collapse.
In court papers lodged last month in the Pretoria High Court, the former directors of African Bank Investments said they aren’t liable for a 2.03 billion rand ($136 million) damages claim lodged by minority shareholders who held stock in the collapsed lender. The directors said they owed their fiduciary duties to the company and not shareholders.
Daniel le Roux, an attorney representing the former Abil directors in the case involving the company’s shareholders, declined to comment on Myburgh’s report.