VBS Mutual Bank (In Liquidation) v Ramavhunga and Others (2018/25062; 2018/25057) [2018] ZAGPJHC 516 (3 August 2018)

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG LOCAL DIVISION, JOHANNESBURG)

CASE NO: 2018/25062

2018/25057

In the matter between:

VBS MUTUAL BANK (In Liquidation) Applicant

And

ANDILE MALUSI ATTWELL RAMAVHUNGA 1st Respondent

ZANELE PERTUNIA MAZEER RAMAVHUNGA 2nd Respondent

MMBULAHENI ROBERT MADZONGA 3rd Respondent

JUDGMENT

TSOKA J:

[1] This is an application for a provisional order sequestrating the estate of the first and second respondents who are married to each other and the third respondent.

[2] The application is one of six applications brought by the applicant, VBS Mutual Bank (VBS), a bank registered with the South African Reserve Bank as a mutual bank in terms of the Mutual Banks Act 124 of 1993.

[3] VBS first approached this court in the six applications on an urgent basis to liquidate the respondents and other senior executives of the bank including Vele Investments (Pty) Ltd (Vele), the majority shareholder of VBS. As the record was voluminous and the majority of respondents indicated their intention to oppose the applications, the matter was referred to me by the Deputy Judge President as a special motion. After having met with the parties and giving directives as to how the matter was to proceed, it was set down on 31 July 2018 and 01 August 2018 for argument.

[4] As four of the six respondents failed to file their answering affidavits as per the directive issued, an order for provisional sequestration was granted on 31 July 2018 against them returnable on 26 November 2018. Regarding Vele, a final winding-up order was granted against it on the same day.

[5] The only respondents who complied with the directive and opposed the separate applications against each of the six applications, are Andile Malusi Atwell Ramavhunga and his wife as well as Mmbulaheni Robert Madzonga.

[6] For convenience and expediency, this judgment relates to the Ramavhungas and Madzonga though their defence and arguments will be discussed separately.

[7] The application by VBS is in terms of Section 10 of the Insolvency Act 24 of 1936 (“Insolvency Act”) which provides:

“10 Provisional sequestration

If the court to which the petition for the sequestration of the estate of a debtor has been presented is of the opinion that prima facie –

(a) the petitioning creditor has established against the debtor a claim such as is mentioned in subsection (1) of section nine; and

(b) the debtor has committed an act of insolvency or is insolvent; and

(c) there is reason to believe that it will be to the advantage of creditors of the debtor if his estate is sequestrated,

it may make an order sequestrating the estate of the debtor provisionally.”

[8] It is VBS’s contention that both the Ramavhungas and Madzonga are indebted to it in an amount of not less than R100 but at least R1.5 billion as at the launching of each application; that the estates of both the Ramavhungas and Madzonga are insolvent, and that it will be to the advantage of the general body of the creditors, that their respective estates be provisionally sequestrated. As pointed above, both the Ramavhungas and Madzonga dispute VBS’s contentions. Prior to dealing with the allegations against them and their respective defences to the said allegations, it is appropriate to first dispose of the meaning of a prima facie case in terms of section 10 of the Insolvency Act.

“Where the application for a provisional order of winding-up is not opposed or where, though it is opposed, no factual disputes are raised in the opposing affidavits, the concept of the applicant, upon whom the onus lies, having to establish a prima facie case for the liquidation of the company seems wholly appropriate; but not so where the application is opposed and real and fundamental factual issues arise on the affidavits, for it can hardly be suggested that in such a case the Court should decide whether or not to grant an order without reference to respondent’s rebutting evidence.”

[10] The court, approving the rationale in Provincial Building Society of South Africa v Du Bois 1966 (3) SA 76 (W), at 977B – C said the following:

“…Trollip J referred to the fact that in terms of s 10 of the Insolvency Act 24 of 1936 an applicant for a provisional order of sequestration need only establish a prima facie case of insolvency and continued (at 78E):

‘As it has been rightly conceded in this case that the balance of probabilities is in favour of the applicants, I think it follows that they have established prima facie that the respondent is insolvent.’”

[11] The question in the two applications is therefore whether VBS has, on a balance of probabilities, having regard to the defences raised by each of the respondents, established on a prima facie basis the requirements of section 10 of the Insolvency Act. The resolution of this question requires the examination of VBS’s claim against the respondents and their defences to enable this court to determine on which side the scale of probabilities tilt.

ANDILE MALUSI ATTWELL RAMAVHUNGA AND ZANELE PERTUNIA MAZEER RAMAVHUNGA CASE NO: 2018/25062

[12] On 10 March 2018 VBS was placed under curatorship in terms of section 81 of the Mutual Banks Act 124 of 1993 read with section 69(1)(a) of the Banks Act 94 of 1990. Sizwe Ntsaluba Gobodo (SNG), a firm of auditors was appointed as the curator of VBS. In turn Anoosh Rooplal, a director of SNG, was to run with the curatorship. This is the person who deposed to the affidavit in support of each of the two applications.

[13] According to Anoosh Rooplal (Rooplal), Tshifhiwa Calvin Matodzi (Matodzi), the chairman of VBS and Vele; Andile Malusi Attwell Ramavhunga

(Ramavhunga), the Chief Executive Officer of VBS; Phillippus Nicholas Truter (Truter), the Chief Financial Officer of VBS; Mmbulaheni

Robert Madzonga (Madzonga), the erstwhile Chief Executive Officer of Vele and Phophi Londolani Mukhodobwane (Mukhodobwane), the Head of Treasury of VBS, devised and executed massive fraud against VBS in order to benefit themselves and Vele to the prejudice of VBS and its depositors. As a result of the massive fraudulent scheme, which was devised and executed from 2017 until Rooplal’s appointment as a curator in March 2018, the loss of VBS was at least R1 521 925 280.46. The loss may well exceed this amount as the investigation is ongoing.

[14] Ramavhunga, so contends Rooplal, as a chartered accountant and in his position as the CEO of VBS should have been aware of the fraud. It is the latters contention that Ramavhunga approved of the fraud. In addition, so the contention goes, the said Ramavhunga, realising that VBS was experiencing liquidity crisis, utilised the amount of R1.5 million belonging to VBS to bribe officials of PRASA to invest about R1 billion with VBS to address the liquidity crisis. In addition Ramavhunga, apart from other financial rewards he received as a result of the fraudulent scheme, he received an amount of R15 million stolen from VBS, which amount was deposited into the bank account of his company, Dambale Holdings (Pty) Ltd (Dambale), his alter ego.

[15] According to Rooplal, prior to the said amount of R15 million being deposited into Dambale’s banking account with VBS, a fictitious amount of R350 million had been deposited into the account of VBS, thus creating an illusion that there has been an actual deposit in that amount while in fact and in reality there was no such deposit. In stealing VBS’s R15 million, the impression was created that the said R15 million was coming from the said deposit in the sum of R350 million.

[16] The R15 million is part and parcel of the R1.5 billion on which the two applications is premised. For convenience and not to drag this matter longer than the time allocated for argument, Ramavhunga was requested to explain the amount of R15 million that was paid to him through Dambale.

[17] According to Ramavhunga, the R15 million was a fee earned as introductory and success fee in enabling Vele to acquire a company, known as Mvunonala Holdings (Mvunonala). The fee was earned while he was the CEO of Vele, the major shareholder of VBS, and while in position of trust in a company to which he owed an utmost good faith and trust.

[18] An examination of the source of R15 million belies the explanation proffered by Ramavhunga. Although he contends that he concluded a similar transaction such as the Mvunonala transaction in 2013 on behalf of Dambale, the uncontested evidence is that the latter was not in existence in 2013, as it is common cause that Dambale was only incorporated in 2015.

[19] On 01 August 2017, Dambale submitted an invoice for the said amount of R15 million, R6 million being the introductory fee while the R9 million was the success fee. He is, however, unable to explain how in August 2017, the period when he introduced one Mhlanga to Matodzi for the acquisition of Mvunonala, he or Dambale could have been entitled to R9 million success fee when nothing at that stage was concluded. He changed tact. His explanation, which is implausible, is that August 2017 is the period he travelled to Zimbabwe to negotiate the acquisition of Mvunonala. But this does not explain the success fee of R9 million in August 2017 when the deal was in its gestation. In his evidence before the investigation instituted by the Deputy Director General of the SARB in terms of Act No. 9 of 2017, he conceded that Mvunonala was purchased by Gazela Trust as far back as April 2017. The explanation that he went to Zimbabwe to negotiate the purchase of Mvunonala is therefore a lie.

[20] The uncontested evidence is that the shares in Mvunonala as at April 2017 were owned by Gasela Trust which acquired Mvumonala for R700 million. That the R15 million is the proceeds of fraud is more probable if not true. The attempted explanation by Ramavhunga of the origins of this amount is not only beyond reasonable doubt false but is a lie. The R15 million is the proceeds of fraud perpetrated on VBS. In the result, the court finds his explanation implausible and not bona fide. VBS has established a prima facie case against him for the provisional sequestration of his estate.

[21] It being undisputed that the Ramavhungas’ estate falls far short of VBS’s loss in the sum of R1.5 billion, it will be to the benefit of the creditors that their estate be provisionally sequestrated.

MMBULAHENI ROBERT MADZONGA CASE NO: 25057/2018

[22] Similarly, with regard to Madzonga, the court only concentrated on part of the VBS’s claim of R1.5 billion being R4.5 million, allegedly the promotion fee paid by Matodzi in elevating Madzonga to the position of the Group Chief Executive Officer of Vele.

[23] According to Rooplal, once the appointment was made, he conducted a preliminary investigation into the fraudulent scheme embarked upon by the executive officer of VBS and Vele. His investigation confirmed the fraud committed in VBS. On 13 April 2018, pursuant to his initial findings, the Deputy Governor of the South African Reserve Bank (SARB) appointed Mr Terry Motau SC as investigator in terms of s 134 of the Financial Sector Regulation Act No 9 of 2017 (FISRA) to conduct an investigation into VBS.

[24] During the investigation, Phophi Londolani Mukhodobwane (Mukhodobwane), the head of Treasury, in VBS deposed to an affidavit in terms of s 136(1)(a) of FIRSA. The content of the affidavit reveals in detail the fraud perpetrated by all the role players including Madzonga.

[25] According to Mukhodobwane’s affidavit, Matodzi instructed him to make down payments and deposits into the mortgage loan obligations of Madzonga in the amount of R4.5 million. The amount of R4.5 million was the proceeds of the fictitious funds from Vele deposited into VBS. That this amount was paid to Madzonga is common cause. He, however, proffers the explanation why the said amount was paid to him.

[26] According to Madzonga, once promoted to the position of the Group Chief Executive Officer of Vele, Matodzi, the Chairman of both VBS and Vele informed him that as Vele’s investments were insufficient to meet his new salary for the new position, Matodzi agreed to pay him a once-off signing fee bonus of R5 million, net of tax. The said signing fee was to be paid within a period of ninety days of his promotion as the Group Chief Executive Officer.

[27] Once he received the R4.5 million from Vele, he paid this money as a deposit towards the purchase price of R9.4 million relating a property described as Stand No. 42, Blue Hills Country Estate Country Estate in Johannesburg. This resulted in VBS only lending him and mortgaging the property to the value of R4.9 million.

[28] The objective evidence however reveals that Madzonga’s explanation of the R4.5 million is a lie. The agreement entered into for the purchase of the Blue Hills property doesn’t require a deposit. In fact, in terms of the agreement, the principal debt is still reflected as the amount of R9.4 million. On 31 October and 31 November 2017, VBS addressed two letters to him that are telling. The two letters record his loan as the amount of R9.4 million and that the monthly repayments, for a period of 60 months, is the amount of R214 000. However, other than few monthly repayments in the amount of R213 000, it does not appear that Madzonga regularly serviced the capital advanced to him by VBS. In any event, it is common cause that the transfer of the property into his name was effected on 29 September 2017. The amount of R4.5 million cannot therefore be a deposit on a property already transferred.

[29] Surprisingly, there is no evidence that Matodzi ever kept his side of the bargain by paying the balance of R500 000 Madzonga appears to also have forgotten about claiming what was due to him in terms of his agreement between him and Matodzi. The ineluctable conclusion is that the R4.5 million is an afterthought. The alleged promotion is nothing but a lie to explain the inexplicable.

[30] In Court, his counsel argued that VBS’s allegations against Madzonga is based on hearsay and therefore inadmissible as it is prejudicial to Madzonga.

[31] I disagree with counsel’s submission. Rooplal states that he undertook an investigation that confirmed the fraud amounting to R1.5 billion. The investigation was confirmed by Mukhodobwane in his affidavit deposed to pursuant to the investigation in terms of FISRA. In my view, Mukhodobwane’s affidavit is a corroboration of the massive fraud perpetrated on VBS. The corroboration cannot therefore be hearsay.

[32] In any event, the provisions of the Law of Evidence Amendment Act 45 of 1988 in particular section 3 thereof renders Mukhodobwane’s evidence, if hearsay, admissible. The provisions of the said section states that, if the court in the interests of justice, is of the opinion that hearsay evidence must be admitted, it must admit it. The only proviso being the consideration of the nature of the proceedings; the nature of the evidence; the purpose of the evidence; its probative value thereof; the reason why the evidence is not given by the person upon whose credibility the probative value of such evidence depends and more telling, any prejudice to a party which the admission of such evidence might entail.

[33] Sight should not be lost that Rooplal had to approach this court on urgent basis in the interest of the creditors of VBS. Mukhodobwane in the presence of his attorney complied with the provisions of the law by deposing to an affidavit. His evidence is not the basis of the six applications. Rooplal in his affidavit clearly states that after his appointment as the curator he undertook an investigation. It was only later that he was furnished with Mukhodobwane’s affidavit which confirmed his initial findings of fraud. Mukhodobwane has not filed an opposing affidavit either confirming or disavowing the affidavit deposed to in terms of section 136(1)(a) of FIRSA.

[34] In the present matter there is no prejudice Madzonga may complain about. He has dealt with the allegations against him. In addition, in spite of not being entitled to file a further affidavit, he did so. There is therefore no prejudice occasioned to him by the admission of Mukhodobwane’s affidavit.

[35] The interest of Justice looms large in this matter. VBS is largely dependent in the main on depositors from poor members of our society. It has been stripped off its cash assets which are the only means of survival of these poor members. Sadly, the stripping off was perpetrated by the very persons who were entrusted to look after the hard earned monies of these poor people. It is not surprising that counsel for VBS characterised the persons who stripped off VBS of its assets as persons in Armani suits. The evidence in the six applications including these two relating to Ramavhunga and Madzonga reveals that the perpetrators purchased luxurious properties and motor vehicles. It appears that their actions were motivated by nothing else but greed. In their opinion enough was never enough.

[36] Madzonga in his affidavit states that he did nothing wrong. According to him he was at Vele which is different from VBS. Yet his conduct says something else. When VBS was experiencing a cash crisis, he first paid the amount of R18 million into VBS. The payment is not rationally explained. Why pay an amount of R3 million of your hard-earned money in an entity you have no relationship with? Why go to the trouble of raising a loan of R15 million in an attempt to rescue an entity which was in financial crisis? This happened in circumstances when the board of VBS did not seek assistance from Vele. The board of the latter also did not resolve to assist VBS. Neither were senior executives of Vele asked for assistance.

[37] The inevitable conclusion is that the advance of R18 million to VBS was an attempt on Madzonga’s part to cover his tracks.

Unfortunately the damage had been done already. R18 million was insufficient to solve the cash crisis in VBS. That is why he later

wrote an email to VBS to recover the R15 million allegedly paid into VBS by error.

[38] The conduct of the perpetrators of this massive fraud in the six applications including these two reminds one of the observation made by Ayn Rand who in 1957 observed –

“…when you see that men get rich by graft and pull rather than by work, …when you see corruption being rewarded and honesty becoming self-sacrifice you may know that society is doomed”.

[39] Fortunately, we are in 2018 where the Constitution rules supreme. Courts as the third arm of state are enjoined to ensure that the Constitution is protected. And that justice between men and men is done.

[40] It being common cause that Madzonga’s assets also fall far short of VBS’s claim, the interests justice cry out for the

sequestration of his estate.

[41] In the two applications relating to both Ramavhunga and his wife as well as Madzonga, an order is granted in terms of the draft order, initialled and dated 3 August 2018.

________________________

M. P. TSOKA

JUDGE OF THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION

JOHANNESBURG

Counsel for the Applicant: Adv Antonie (SC)

Instructed by: Werksmans Attorneys

Counsel for Mr & Mrs Ramavhunga: Adv der Westhuizen

Instructed by: BDK Attorneys

Counsel for Mr Madzonga: Adv Blou (SC) & Adv Gilbert

Date of Hearing: 31 July 2018 – 01 August 2018

Date of Judgment: 3 August 2018