Engelbrecht N.O and Others v Zuma and Others (25965/2012) [2015] ZAGPPHC 403; [2015] 3 All SA 590 (GP) (25 June 2015)

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[2015] ZAGPPHC 403
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Engelbrecht N.O and Others v Zuma and Others (25965/2012) [2015] ZAGPPHC 403; [2015] 3 All SA 590 (GP) (25 June 2015)

IN
THE HIGH COURT OF SOUTH AFRI CA
GAUTENG
NORTH DIVISION, PRETORIA
Case
No.:25965/2012
DATE:
25 JUNE 2015
In
the matter between:
JOHAN
FRANCOIS ENGELBRECHT
N.O
................................................................
First
Applicant
DEON
MARIUS BOTHA
N.O
....................................................................................
Second
Applicant
ALLAN
DAVID PELLOW
N.O
....................................................................................
Third
Applicant
BAREND
PETERSEN
N.O
.........................................................................................
Fourth
Applicant
And
KHULUBUSE
CLNE
ZUMA
......................................................................................
First
Respondent
ZONDWA
ZOYILISE GHADDAFI
MANDELA
…..............................................
Second
Respondent
SHESHILE
THULANI
NGUBANE
..........................................................................
Third
Respondent
SULLIMAN
SHANA
................................................................................................
Fourth
Respondent
FAZEL
BHANA
............................................................................................................
Fifth
Respondent
JUDGMENT
THE
PARTIES
1.
The first applicant is JOHAN FRANCOIS ENGELBRECHT N.O., an adult male
insolvency practitioner acting in his official capacity
as one of the
provisional liquidators of the Pamodzi Group of Companies of Phula
Lodge, 117 Swawelpoort, Pretoria.
2.
The second applicant is DEON MARIUS BOTHA N.O., an adult male
insolvency practitioner and director of Corporate Liquidators,
with
principal place of business at 2nct Floor, Gilde Building, 1068
Arcadia Street, Hatfield, Pretoria. He is also a provisional

liquidator of the Pamodzi Group of Companies.
3.
The third applicant is ALLAN DAVID PELLOW N.O., an adult male
insolvency practitioner of 15 Girton Road, Parktown, Johannesburg.

He is also a provisional liquidator of the Pamodzi Group of
Companies.
4.
The fourth applicant is BAREND PETERSON N.O., an adult male
insolvency practitioner of gth Floor, Wale Street Chambers, 33 Church

Street, Cape Town. He, too, is a provisional liquidator of the
Pamodzi Group of Companies.
5.
The four applicants are acting jointly in the pursuit of the relief
they claim against the respondents. When they are referred
to in this
judgment otherwise than as the 'applicants', they will be identified
as 'the liquidators' if the two former provisional
liquidators are
included in the reference.
6.
When the Pamodzi mines were originally placed in provisional
liquidation, the Master appointed the four applicants together with

two other provisional liquidators, Messrs Motala and Gainsford. The
latter were removed prior to the institution of the present

proceedings. The Court enquired at the commencement of argument
whether they might have any direct interest in the outcome of
the
application. The two persons were approached at the Court's request
by the applicants' legal representatives. The court was
given the
assurance that both were aware of the application and of the date
upon which it was enrolled. Neither expressed any interest
to be
joined or to attend the hearing.
7.
The first respondent is KHULUBUSE CLIVE ZUMA, an adult male
businessman residing at 22 Taunton Street, Somerset Park, Umhlanga.

The first respondent was the chairman of the board of directors of
the now insolvent company Aurora Empowerment Systems (Pty)
ltd.
("Aurora").
8.
The second respondent is ZONDWA ZOYILISE GHADAFFI MANDELA, an adult
male businessman residing at 11884 Maseli Street, Orlando
West,
Soweto. The second respondent was a director of Aurora.
9.
The third respondent is SHESHILE THULANI NGUBANE, an adult male
businessman residing at 404 Road 6, Chesterville LOC, Durban.
The
third respondent was a director of Aurora.
10.
The fourth respondent is SULLIMAN SHANA, an adult businessman
residing at 30 Royal Houghton Estate, 22 Third Street, Houghton,

Johannesburg. The fourth respondent was, at all relevant times,
involved in the management of Aurora's affairs.
11.
The fifth respondent is FAZEL BHANA, an adult businessman residing at
30 Royal Houghton Estate, 22 Third Street, Houghton, Johannesburg.

The fifth respondent was, at all relevant times, involved in the
management of Aurora's affairs.
THE
RELIEF SOUGHT
12.
The applicants, as provisional liquidators, sought an order extending
their powers to allow them to pursue the present litigation,
which
order was duly granted.
13.
The applicants apply for a declaratory order that the respondents,
jointly and severally, the one to pay the others to be absolved,
be
declared liable for all debts and liabilities owed by Aurora to the
Pamodzi Group of Companies, as provided in section 424 of
the
Companies Act 61 of 1973, read with section 77 and Schedule 5 of the
Companies Act 71 of 2008
.
14.
The Pamodzi Group of Companies comprises Pamodzi Gold (Orkney) (Pty)
Ltd; Pamodzi Gold East Rand (Pty) Ltd; Nigel Goldmining
(Pty) Ltd;
The Grootvlei Proprietary Mines Ltd; Consolidated Modderfontein Mines
1979 (Pty) Ltd and Consolidated Modderfontein
Mines Ltd. All these
companies are in provisional liquidation, the provisional orders
having been extended over the past few years
from time to time.
15.
Unsurprisingly, the applicants also seek a costs order in the event
that their prayers are granted.
THE
FACTUAL BACKGROUND
16.
The applicants must establish the facts upon which they rely to prove
fraudulent or reckless conduct on the part of the respondents
on a
balance of
probabilities:
Philotex (Pty) Ltd and others v Snyman and Others; Braitex (Pty) Ltd
and others v Snyman and Others
[1997] ZASCA 92
;
1998 (2) SA 138
(SCA) at 142G - J;
even though recklessness is not lightly to be found: Strut Ahead
Natal (Pty) Ltd v Bums
2007 (4) SA 600
(D&CLD). In the light of
the fact that the respondents argue, with considerable emphasis, that
factual disputes permeate the
papers to such an extent that not even
a robust approach could allow the Court to dispose of the matter on
paper, it is necessary
to delve into the facts upon which the
applicants rely for the relief they seek; and to determine whether
the relevant occurrences
are indeed matters of dispute or not. In the
following paragraph only the uncontested, uncontestable or common
cause facts will
be dealt with.
16.1
The fourth respondent has known the third respondent for some
thirteen years and has known the second respondent since the
latter
was a child;
16.2
A meeting was held between the third, fourth and fifth respondents
during 2003 to discuss potential future business transactions;
16.3
The fourth, fifth and the first respondents met in 2004/5;
16.4
During about February 2009 the first, third, fourth and fifth
respondents met in the Beverley Hills Hotel in Durban. The first
and
third respondents wanted to embark on business on a large scale which
would require extensive funding which they sought from
the fourth
and fifth respondents;
16.5
The fourth and fifth respondents were tasked to find the necessary
funds. They were already acquainted with one Dato Rajah
Shah
("Shah"); and a Malaysian equity fund known as AM Equity
Ltd (BV) ("AME");
16.6
Fourth and fifth respondents invited Shah to come to South Africa and
the respondents met with him during about March 2009.
They discussed
business to be conducted through Aurora, to which Shah and AME would
contribute finance, first and second respondents
' the necessary
political connections' and fourth and fifth respondents financial and
management acumen;
16.7
A listed entity would be acquired to own shares in Aurora and thereby
hold equity in this company. The acquisition of a listed
entity was a
condition precedent - as testified to by the third respondent in his
answering affidavit at par 25.6 - which AME required
to be fulfilled
before any funding would be advanced;
16.8
Shah would and did become a member of Aurora's board of directors;
16.9
Fifth respondent was tasked with finding a listed entity that could
be acquired for the purpose of reverse listing Aurora on
the JSE;
16.10
Fourth and fifth respondents did not wish to become directors of the
newly established company but would procure finance and
act as
consultants against remuneration for their efforts;
16.11
First respondent would be chairman of the board, second respondent
managing director and third respondent executive director
together
with Shah;
16.12
On the 20th March 2009 Pamodzi Gold Orkney (Pty) Ltd was placed under
provisional liquidation by this Court;
16.13
On the same date the Master appointed the second and third
applicants as provisional liquidators of this company together
with
Mr Enver Mohamed Motala ("Motala");
16.14
On the 23rd March 2009 the powers of these three provisional
liquidators were extended by an order of this Court to enable
them to
deal with the assets of the Pamodzi Gold Orkney company;
16.15
On the 1ih April 2009 Consolidated Modderfontein Mines
Ltd; Consolidated Modderfontein Mines 1979 Ltd; The
Grootvlei
Proprietary Mines Ltd; Nigel Goldmining Company (Pty) Ltd and Pamodzi
Gold East Rand (Pty) Ltd and Pamodzi Gold Ltd
were all placed under
provisional liquidation.
16.16
On the same day, the Master appointed the four applicants together
with Motala and Gavin Cecil Gainsford ("Gainsford")
as
joint provisional liquidators in all the companies. They were granted
extensive powers to deal with the assets and business
of the
companies by the High Court. It is common cause that the return dates
of the provisional liquidation orders were extended
from time to time
during the relevant period when the events that lead to the current
litigation occurred;
16.17
All the companies were found to be insolvent to an extent that
precluded any thought of the provisional liquidators being
able to
return them to profitability by continuing to trade in insolvency;
16.18
It was therefore decided to find a single buyer for all the mines, if
possible, and thereby achieve the best possible return
for the
concursus
creditorum.
Standard Bank was instructed to attend to the process of finding a
preferred bidder. At the time, the insolvent mines
employed several
thousand miners;
16.19
The respondents had, in the meantime, identified Redwood Timber
Merchants Limited ("Redwood") as their first potential

business venture and began to negotiate during May 2009 for its
acquisition. The shares in this company were held by the Naas

Grimbeeck Family Trust, which in turn was controlled by Mr Naas
Grimbeeck. He was an old acquaintance of the fourth and fifth

respondents;
16.20
A meeting to discuss the possible sale of the Redwood shares was
held between all the respondents and Mr Grimbeeck and his
advisers at
Mr Grimbeeck's house during May 2009. A purchase price of R 100
million was considered, which was to be paid principally
from
Redwood's profits over the two years following the conclusion of the
agreement. The company's profits were guaranteed by
the seller to
run to R 30 million annually;
16.21
An agreement was drawn up by a firm of attorneys, which provided
that the Redwood shares would be transferred against payment
of the
purchase price in full or the issue of Vendor Shares by Cenmag
Limited, to the full value of the purchase price. The seller
of the
Redwood shares was to hold the share certificates as security for
such payment and the performance of all the purchaser's
obligations.
Only then would the effective date of the transaction arrive and
ownership of the shares be transferred to the purchaser,
Aurora. The
agreement was signed on the 3rd June 2009.
16.22
During about May 2009 Aurora made an offer for the acquisition of
71% of the shares in Cenmag Limited, a listed entity, a
transaction
engineered by the second, fifth and third respondents. The intention
was to reverse list Redwood by Cenmag acquiring
shares in Aurora
which in turn would have acquired the Redwood shares;
16.23
The owners of the Cenmag shares were a certain Farkas, a Ms
Greenblatt and a close corporation known as Blaf Investments CC.
An
agreement was drawn up between Farkas and Greenblatt and Blaf
lnvetments CC, _in which it was recorded that Farkas' and
Greenblatt's
shares would be sold to Blaf Investments which would in
turn sell the shares to Aurora as eventual purchaser. The effective
date
was the 1st March 2009. Certain third parties held pre-emptive
rights to some of the shares sold as minority shareholders and the

transaction was subject to the suspensive condition that these
parties waived their rights before 31 August 2009, the date upon

which the sale of Blafs shares to Aurora had to be finalised. The
total purchase price payable by Aurora to the sellers amounted
to R 6
140 515, 50 (Six million one hundred and forty­ thousand five
hundred and fifteen Rand and fifty cents). This sum was
payable
fifteen business days after the finalisation of any transaction with
the minority shareholders to enable Aurora to acquire
the shares in
respect of which the third parties held a pre-emptive right;
16.24
There is no allegation in the respondents' affidavits that the
purchase price was ever paid or that any shares were transferred
into
Aurora's name. On the contrary, the majority shareholders of the
Cenmag shares
withdrew
from that transaction by way of a public announcement on the 11th
January 2010. Efforts to revive the transaction came
to nought;
16.25
(According to the second to fifth respondents' answering affidavit
the respondents continued to search for a listed entity
that could
be acquired to comply with the AME conditions for funding. The next
listed company that was identified was Labat Africa
Limited, which
was to be acquired through a transaction with Link Private Equity and
Investments (Pty) Ltd. This agreement was
only concluded in July
2010;)
16.26
A further agreement was entered into on the 5th August 2009 for the
acquisition of Bayete Minerals (Pty) Ltd, the shares of
which were
held by Silver Meadow Trading (Pty) Ltd and Mattino LLC jointly. The
purchaser was ltekane Trading 253 (Pty) Ltd, a
subsidiary of Aurora
according to the sales agreement. The transaction was subject to a
due diligence investigation being performed
and the purchase
consideration being transferred in cash and by the transfer of Aurora
shares in lieu thereof. This transaction
had no effect upon the
dealings Aurora had with the liquidators;
16.27
During about June 2009 Aurora entered into another agreement with one
Hart for the acquisition of the shares in Primrose Gold
Mines (Pty)
Ltd. The sale was subject to certain conditions relating to due
diligence and contracts of service to be entered into
with key staff
members. Transfer of the shares would only be effected once the
purchase price had been paid in full. This transaction,
too, had no
effect upon Aurora's involvement with the companies in provisional
liquidation;
16.28
During the period between their appointment and the end of June 2009
the liquidators were confronted with numerous problems
arising from
the huge debts owed to a variety of creditors and to their employees
by the insolvent mines. It was imperative to
dispose of the mines
while they were still holders of their mining licences and could
conceivably become fully operational again
if they were acquired by a
knowledgeable purchaser possessed of sufficient funds to rescue them.
The liquidators had to borrow
money in the meantime to enable them to
care for the mines. An amount of R 45 million was lent and advanced
by the Industrial
Development Corporation in respect of Pamodzi's
Fee State Operation together with another R 5, 8 million paid by the
IDC directly
to insurers. R 50 million was lent by another major
creditor, HVB Bank, in respect of the East Rand mines and Orkney.
These transactions
were sanctioned by the Court on the 28th May 2009;
16.29
The liquidators called for tenders for the acquisition of the mines.
The original deadline for the submission of tenders was
2nd June
2009. Standard Bank prepared an information memorandum for potential
purchasers in respect of the Modderfontein, Nigel
and Grootvlei
mines;
16.30
Pursuant to the tenders the Free State operations were successfully
sold to Harmony Gold Mines Ltd;
16.31
The call for tenders for the insolvent mines caused Aurora's
directors, including Shah, to become interested in their acquisition.

Aurora investigated the state of their business and their probable
value with the assistance of a mining expert, Dave Stander,
who
provided a surface assessment of the value and state of the mines;
16.32
On the 27th July 2009 Aurora submitted a binding offer signed by the
second respondent to the lead liquidator, Mr Motala.
This document
was Annexure JFE 21 to the applicants' founding affidavit and will
be referred to in this judgment as "the
first bid". Its
content was the subject of considerable contestation during argument
and it will be analysed in some detail
below. According to the third
respondent the fifth respondent had at that stage already been
given a verbal undertaking by
Shah prior to the delivery of the
first bid that AME would make US$ 100 million available for
investment purposes;
16.33
In the meantime the workers on the East Rand mines went on strike in
August 2009;
16.34
The fifth respondent requested Shah and AME to provide confirmation
of AME's willingness to fund the project, proof of which
was required
by the liquidators on the advice of Standard Bank. A letter dated
14th September 2009 was received by the first respondent
on behalf
of Aurora, written under the letterhead of AME, signed by Shah,
confirming the availability of the sum of R 200 million
for
acquisition of the Orkney gold mine. The funds were said in this
missive to be made available ' ...either through subscription
of
shares by us in Aurora or its nominee or through an underwriting
agreement to be concluded between ourselves and Aurora or
its nominee
due to Aurora securing the preferred bid for the Pamodzi Gold Orkney
(Pty) Ltd ....'
16.35
On the 1st October 2009 Aurora presented its second bid document to
the liquidators for the acquisition of the Pamodzi Gold
mines on the
East Rand, again signed by the second respondent, and offering a
total of R
350
million for the mines. This sum was determined, according to the
respondents, after a meeting with the German and US representatives

of HVB in late September 2009. According to the third respondent the
applicants, the respondents and Ms Du Toit of Standard Bank
attended
this meeting. There were regular discussions between representatives
of these entities regarding several issues that
arose in connection
with the preparations for Aurora's takeover of the insolvent mines.
Shah was at that stage in South Africa,
inspected the mines and
participated in the discussions with an eye to securing the financing
of the proposed acquisition.
16.36
The terms of this second bid document will likewise be discussed
later in this judgment;
16.37
On the sth October 2009 AME provided a letter confirming the
availability of funding to the chairperson of the Aurora
board of
directors, recording that R 350 million would be made available to
acquire the East Rend gold mines and undertake capital
investments '
... against either a subscription in shares in Aurora or its
Johannesburg Security Exchange (JSE) listed nominee
through an
underwriting agreement between Aurora and ourselves on confirmation
of Aurora securing the preferred bid ..."
16.38
Both bids were accepted by the liquidators,
16.39 On
the 15th September 2009 Aurora moved onto the Orkney mine and on the
15th October 2009 onto the East Rand mines;
16.40 The
parties concluded what was called an INTERIM TRADING AND CONTRACT
MINING AGREEMENT in respect of each mine. In terms of
these contracts
it was recorded that inter a/ia:
(i) The
parties intended to effect a compromise in respect of the East Rand
gold mines; failing which they would enter into a sale
of the
insolvent companies' assets to Aurora;
(ii) Aurora
would commence mining of the mines as the agent of the liquidators in
order to protect the assets;
(iii) Aurora
would inject cash into the business of the insolvent companies;
(iv) Aurora
had employed mining expert David Stander for a period of five years
to provide the necessary technical know-how to
run the mines;
(v) Aurora
would commence mining against a fee and would provide care and
maintenance for the mines;
(vi) Such
care and maintenance would include payment of: wages and salaries of
the mine employees; of the hostel fees; of water
and electricity to
the mine houses; of rates and taxes and service charges; of
electricity and security services; of all premiums
of all insurance
policies; of reasonable repair and maintenance; of the costs of
maintenance and upkeep of the slime dams; of the
sewage pumped; of
the fees of experts other than Stander, if such needed to be
employed; of pumping of water and of miscellaneous
expenses;
(vii) The
proceeds of all gold mining activities would be paid into a specified
bank account;
(viii) Negotiations
would be entered into with the major creditor with an eye to paying
off the latter's loan;
(ix) The
mining areas of all mining operations undertaken by Aurora would be
rehabilitated;
(x) Aurora
would be responsible for the physical security of the mines;
(xi) The
agreement was to last as an interim arrangement pending a compromise
or a sale of assets until 12 January 2010, unless
the dead line was
extended by agreement for a period of no longer than 90 days after 12
January 201O;
(xii) Aurora
would comply with all applicable legislation and regulations and
protect the mining rights;
(xiii) Aurora
would keep proper accounting records;
(xiv) Aurora
would maintain all operating equipment; and keep it insured;
(xv) All
mining operations would be conducted in a safe and professional
fashion by Aurora;
(xvi) Aurora
warranted that it had the necessary skill and expertise to conduct
mining operations;
16.41 Other
than the ITCMA agreements no other formal contract was entered into,
although such was envisaged according to the third
respondent.
16.42 Aurora
obtained R 15 million through the efforts of the fourth and fifth
respondents, who entered into loan agreements with
members of their
families and members of the community;
16.43 The
third respondent alleged in his answering affidavit on behalf of the
second to fifth respondents that the Malaysian funding
would become
available in December 2009. This date, the third respondent advised,
was envisaged in order to enable the Aurora directors
to finalise the
transfer of the mining licences and the
section 311
compromise that
was planned;
16.44 The
funding that was expected from Shah or AME did not materialise. The
respondents were able to fund the initial operations
from the loans
obtained by fourth and fifth respondents from members of their
families and the community for the first month or
so after taking
over the insolvent mines. Thereafter the funds ran out;
16.45 While
still waiting for the funds to be made available, the liquidators
applied to court in December 2009 for an extension
of the provisional
liquidation orders so that the transaction with Aurora could be
finalised, as payment of the loans promised
by the funders was still
expected according to the respondents. The extended return date was
set for the 30th April 201O;
16.46 On
the 28 November 2009 the Department of Mineral Resources issued a
notice to the mine management at Grootvlei mine to
cease operations
at all shafts because of the unsafe condition of the hoist system on
all shafts. The notice to cease operations
was prompted by an
accident causing a fatality at this mine. After extensive
negotiations the Department was persuaded to withdraw
the notice by
converting it to a compliance order in terms of
section 55
of the
Mine Health and Safety Act 29 of 1996
as amended. The compliance
period was two weeks from date of the order;
16.47 In
November 2009 another fatality occurred at the mines and a second
notice to cease operations in terms of
section 54
of the
Mine Health
and Safety Act was
served upon the mine management under the control
of Aurora. Again extensive negotiations took place during which, the
third respondent
alleges, the liquidators requested the respondents
to bring their political connections into play to keep the mines
open. Eventually
only the part of the mine where the fatality had
occurred was closed down while the rest of the mines were allowed to
continue
operations. In the answering affidavit prepared on behalf of
the second to fifth respondents the third respondent expresses the

view that, had it not been for the political clout exercised by some
members of the Aurora board of directors, the Department
of Mineral
Resources would have shut the insolvent mines down;
16.48 During
December 2009 the R 50 million loan the applicants had secured from
HVB Bank was due for repayment. As no funds were
available,
arrangements had to be made with Aurora and the bank to effect
payment of the sum of R 3, 5 million in interest to roll
over the
loan. The purchase price payable by Aurora for the mines was to be
reduced by this sum once financing had been arranged;
16.49 In
January 2010 the workers went on strike again because they did not
receive a bonus. An arrangement was made in February
2010 to pay a
pro rata bonus;
16.50 On
the fifth February 2010 the liquidators received a letter from an
attorney Smit, allegedly confirming that he held R 20
million in his
trust account to fund the Aurora transaction through a compromise in
terms of
section 311
of the old
Companies Act. This
letter was false;
16.51 During
February 2010 the liquidators were informed by the insolvent
companies' insurance brokers that the respondents had
cancelled
several insurance policies, inter alia the bullion in transit policy,
and had failed to pay the premiums of others on
due date, being the
15th February 2010. The applicants' attorneys addressed a letter to
the respondents demanding immediate payment
of the outstanding
premiums, which letter was dated the 2th February 201O;
16.52 On
the 9th March 2010 the applicants' attorneys of record followed up
their letter in this respect, recording that the earlier
demand had
not been complied with. A later letter, dated 19th April 2010,
recorded that the respondents had failed to maintain
any insurance
policy as a result of non-payment of the premiums and a failure to
engage with the brokers, who had signified their
intention to
terminate their association with Aurora;
16.53 On
the 2nd March 2010 already, however, the attorneys had written to the
respondents with reference to an earlier letter dated
25 January
2010, demanding compliance with the reporting and accounting
obligations that the ITCMA agreements imposed upon the
respondents in
respect of their management of the insolvent mines, which it was
alleged the respondents had failed to observe.
The respondents were
placed in mora and were informed that failure to comply with the
demand within seven days might lead to the
cancellation of the ITCMA
agreements;
16.54 Also
on the 2nd March 2010 the liquidators addressed a letter to AME
through their attorneys in which they recorded that AME's
funding had
been a major factor in selecting Aurora as the preferred bidder and
demanding compliance with the undertaking to provide
the money;
16.55 On
the 15th March 2010 the mine manager of the East Rand operations,
Mr Bezuidenhout, was suspended by the respondents,
pending a
disciplinary enquiry;
16.56 Shah
travelled to South Africa as a result of the letter addressed to him
by the liquidators' attorney dated 2nd March 2015
and held a
meeting with the liquidators and the respondents in Johannesburg.
While he was at the East Rand mining operations,
another strike
occurred on the 13th March 2010. Shah was held hostage by some angry
miners together with Mr Stander of management.
He left the next day
and returned a month later to inform the parties that he was
withdrawing from the transaction on behalf of
AME because South
Africa was unsafe. Second to fifth respondents argue that by so
doing, AME reneged on the commitment to provide
funding to Aurora;
16.57 AME
replied on the 29th March 2010 to the attorneys' letter of the 2nd
march 2010 claiming that Aurora had not fulfilled the
conditions set
out in the letters of 14 September 2009 and 3th October 2009, namely
the subscription in shares of Aurora or a
nominated member of the
JSE. In addition it was claimed that Aurora had failed to meet other
conditions such as corporate governance
of an acceptable standard;
lack of financial transparency, lack of integrity of management staff
and the failure to supply financial
information and accounting
reports;
16.58 During
this period the relationship between the liquidators and the
respondents took a turn for the worse. On 12 March 2010
the
applicants' attorneys wrote to the respondents and demanded a
reaction to media reports that polluted mine water was being
dumped
into the Blesbokspruit and that the environmental enforcement
authorities had raided the Grootvlei mine. Urgent remedial
action was
demanded if there was any truth to the allegations;
16.59 On
31st March 2010 another letter followed, repeating the demand for an
explanation regarding the pollution of the Blesbokspruit
and a
further allegation that Aurora had failed to pay the mineworkers for
three months. Again an immediate reaction was demanded.
It should be
added at this juncture that according to the third respondent, Coin
Security, the company responsible for safety
arrangements at the
mines, had not been paid by Aurora since February or March 2010.
Hulley and the first respondent made some
payments out of their
pockets to them, but they withdrew in July 2010, to be replaced at
the third respondent's behest by Vusisiwe
Security;
16.60 Meanwhile,
as testified by the third respondent in the second to fifth
respondents' answering affidavit, the East Rand mines
closed down
their operations and were put on care and maintenance, with the
pumping of water being the only activity still conducted.
It is
emphasized in the second to fifth respondents' answering affidavit
that none of the respondents ever returned to the mines
after March
201O;
16.61 During
April the fourth and fifth respondents' ties with Aurora were severed
because of their failure to procure funding for
the company. Press
reports suggested that they had received significant sums from the
mining operations while workers had not been
paid. It must be pointed
out, however, that the deponent to the second to fifth respondents
annexes an inchoate written agreement
to the answering affidavit in
terms of which fifth respondent was appointed as advisor to the
Aurora group of companies at a remuneration
of R 100 000,00 per month
from January 2010 to March 2010; and at R 200 000, 00 per
month thereafter. Although he further
asserts that fifth respondent
was acting in this capacity while negotiations with a funder were
conducted in June 2010, it is unclear
whether the terms contained in
the document were implemented, as the court's copy is not signed by
the fifth respondent;
16.62 On
the 5th April 2010 an accusation of asset stripping was levied
against the respondents by the applicants based on information
that
had surfaced in the media;
16.63 On
the 15th April 2010 the liquidators commenced an audit of the
management accounts that had been supplied irregularly
and demanded
co-operation from the respondents to finalise the process urgently;
16.64 On
the 21April 2010 the respondents requested an extension of the
deadline for the compliance with their financial commitments
toward
the liquidators until the end of May, recording that they were in
negotiations with a new potential funder. This person
was a Mr Lines,
described by the second to fifth respondents as a wealthy American
businessman. The proposed transaction fell through
in June 201O;
16.65 Although
officially no longer involved with Aurora, (as to which see sub­
paragraph 16.61 above); the fifth respondent
procured another
potential funder, Global Emerging Markets Equity Fund Ltd, which
expressed interest in funding the acquisition
of the mines through a
purchase transaction involving the Labat shares owned by Aurora.
While negotiations were still being conducted,
the public comment
upon the Aurora involvement in the mines became increasingly
negative, especially after a certain Brad Wood
was contracted to
assist with security enforcement and admittedly killed four alleged
illegal miners. The funding by Global Emerging
Markets Equity Fund
Limited came to nought barring an US$ 2 million transaction in
respect of Labat shares;
16.66 The
next potential buyer of the distressed assets of the insolvent mines
was Shandong Gold Group Co. Ltd, one of the world's
largest gold
producing companies. In a letter to the applicants dated 28 November
2010 the said company's chairperson confirms
that US$ 100 million had
been set aside for a proposed transaction with Aurora in respect of
the insolvent mines. A series of negotiations
followed with Chinese
representatives inspecting the mines and e-mails and letters being
exchanged over a period of several months
while meetings were
conducted in China and Germany with the creditor bank. Apparently Mr
Motala, the first respondent and Mr Hulley
played a leading role in
this endeavour. They accompanied a South African trade delegation to
China and flew to Germany to negotiate
with HVB Bank;
16.67 Motala
and Gainsford were removed from their office on the 21 May 2011 by an
order of this court.
16.68 On
26 May 2011 the applicants cancelled the agreement with Aurora,
effectively ending the involvement of Shandong Gold. It
should be
underlined at this stage that the respondents maintain that the
transaction with Shandong Gold was close to finalisation,
but no
draft agreements with this entity, or supporting affidavits by their
representatives have been filed in confirmation of
this assertion.
16.69 In
the same month the Master authorised an insolvency enquiry into the
affairs of the insolvent companies, which was presided
over by adv
Wayne Gibbs. After the present applications had been launched the
court authorised the disclosure of the full record
of the enquiry to
all the parties;
16.70 The
provisional liquidation orders were extended from time to time
while a purchaser or funder for the acquisition of the
mines was
sought;
16.71 From
January 2011 Aurora embarked upon a surface "clean up' by
collecting all the surface ore that was to be found and
sending it to
the refinery, extracting gold in the process;
16.72 The
respondents allege that large scale theft of ore occurred
throughout the relevant period by Zama-Zamas and that other
assets
were stripped by thieves. Numerous complaints to the police had no
positive effect;
16.73 Mr
Hulley is referred to by the respondents as an Aurora director at all
relevant times. He disputed his directorship and
as he has not been
joined in these proceedings, no further comment is necessary in this
regard;
16.74 Aurora
was liquidated on 4 October 2011 through an application brought by
an unpaid creditor;
16.75 In
November 2011 the applicants proved two claims against Aurora in
liquidation. The first was admitted to proof at the first
meeting,
couched as a claim for R 122 million described as being in respect of
breach of contract, cancellation and restitution,
but in fact
reflecting a claim for payment of the proceeds of gold sales
conducted by Aurora;.
16.76 The
second claim was rejected when it was first presented by the
presiding officer as being illiquid. It was for the sum of
R 1,7
billion in respect of depreciation and loss of assets of the Pamodzi
mines while under the control of Aurora as managed by
the
respondents. This claim was compromised by Aurora's liquidators, duly
empowered by a creditor's resolution to do so and admitted
to proof
in terms of
section 78
(3)
of the
Insolvency Act 24 of 1936
;
16.77 The
respondents contend that these claims are inadmissible for the
purposes of a determination of liability on their part
in terms of
section 424 of the Old Companies Act 61 of 1973;
16.78 In
pursuit of i.a. the present application, the applicants signed a fee
and mandate agreement with Aurora's provisional liquidators,
which in
effect indemnified the latter in respect of the attorney's fees. The
attorney, Mr Walker, has acted for the applicants
in these
proceedings throughout. The respondents suggest that this arrangement
is untoward and compromises the independence of
Aurora's liquidators,
thereby tainting the proof of applicants' claims against Aurora and
the respondents. The first respondent
sought to review the admission
of the claims on 23 February 2015, prior to the hearing of the
present application. The review
application failed because of the
first respondent's lack of standing to review the decision to admit
the claims;
16.79 The
applicants eventually sold the insolvent mines in April 2012 for R
70 million, a sum substantially less than the purchase
price agreed
with the respondents some years earlier;
16.80 Ms
Du Toit, who had prepared the commercial information pack for the
provisional liquidators, testified during the inquiry
before adv
Wayne Gibbs that she had attempted to contact AME at the office
indicated on its letterhead. According to Standard
Bank's Kuala
Lumpur office that address is a chat room or a public internet
station. She testified further that prior to acceptance
of Aurora's
bid by the liquidators she repeatedly called for further information
on the funder before any contract was signed,
but that her advice was
not met with any enthusiasm by the contracting parties. Her testimony
contributed to the inquiry's chairperson's
comment in his report that
he doubted the very existence of Shah and AME. As this evidence is in
dispute the matter will be dealt
with onthe basis of the respondents'
version.
The
applicable legislation
17. The
parties are ad idem that the Old Companies Act 61 of 1973 applies to
the present dispute. Section 424 of this Act reads
as follows:
424.
Liability of directors and others for fraudulent conduct of business.
(1) When
it appears, whether it be in a winding-up, judicial management
or
otherwise, that any business of the company was or is being carried
on recklessly or with intent to defraud creditors of the
company or
creditors of any other person or for any fraudulent purpose, the
Court may, on the application of the Master, the liquidator,
the
judicial manager, any creditor or member or contributory of the
company, declare that any person who was knowingly a party
to the
carrying on of the business in the manner aforesaid, shall be
personally responsible, without any limitation of liability,
for all
or any of the debts or other liabilities of the company as the Court
may direct.
(2) (a)
Where the Court makes any such declaration, it may give such further
directions as it thinks proper for the purpose of giving
effect
to the declaration, and in particular may make provision for making
the liability of any such person under the declaration
a charge on
any debt or obligation due from the company to him, or on any
mortgage or charge or any interest in any mortgage or
charge on any
assets of the company held by or vested in him or any company or
person on his behalf or any person claiming as assignee
from or
through the person liable or any company or person acting on his
behalf, and may from time to time make such further orders
as may be
necessary for the purpose of enforcing any charge imposed under this
subsection.
(b)
For the purposes of this subsection, the expression 'assignee'
includes any person to whom or in whose favour, by the directions
of
the person liable, the debt, obligation, mortgage
or
charge was created, issued or transferred or the interest was
created, but does not include an assignee for valuable consideration

given in good faith and without notice of any of the matters on the
ground of which the declaration is made.
(3) Without
prejudice to any other criminal liability incurred, where any
business of a company is carried on recklessly or with
such intent or
for such purpose as is mentioned in subsection (1), every person who
was knowingly a party to the carrying on of
the business in the
manner aforesaid, shall be guilty of an offence.
(4) The
provisions of this section shall have effect notwithstanding that the
person concerned may be criminally liable in respect
of the matters
on the ground of which the declaration is made.
Applying
the law to the facts
18.The
respondents were represented by two legal teams, the first respondent
having instructed his own attorney and counsel.
As will
become apparent later, the first respondent's situation does indeed
differ from that of the other respondents. In what
follows all the
respondents will be referred to as 'the respondents', unless it is
necessary to identify the first respondent as
such.
19.The
applicants rely upon section 424 for the declaratory orders they seek
that the respondents should be held personally liable
for Aurora's
debts owed to the insolvent companies. They must consequently provide
proof on a balance of probabilities that all
five respondents are
individually guilty of intentional deceit; or are each in his
individual capacity guilty of reckless conduct
of Aurora's business.
Recklessness may consist of blameworthy conduct characterised by a
failure to take any due care in the management
of a company that
results in detriment to the company and others and exhibits a high
degree of disregard for the standards observed
by honest and diligent
men of affairs. It may, however, also be demonstrated by a similarly
uncaring and careless failure to
attend to the company's
business or to prevent foreseeable harm from being caused by
failing to take reasonable preventative
measures against such
eventualities: Cronje NO v Stone en 'n Ander
1985 (3) SA 597
(T).
20.
In seeking to establish that the respondents are guilty of fraud the
applicants rely primarily upon the content of the bid documents

prepared by the respondents - or on their behalf at their behest -
which were presented to the applicants at the commencement of
the
negotiations to acquire the Pamodzi mines for Aurora. Because of the
significance these documents have assumed the first is
quoted in
full. The second is couched in similar terms and will be quoted only
to the extent that it differs from the earlier one.
AURORA
EMPOWERMENT SYSTEMS
27
JULY 2009
Ref
no: SBTILIQ/001 SBT TRUST (Pty) Ltd
33
Bath Avenue Rosebank
Attention:
Mr. Enver Mota/a Dear Sir
Binding
Offer: Pamodzi Gold Orkney (Pty) Ltd (In provisional Liquidation )
Aurora
Empowerment Systems (Pty) Ltd, a specialist investment vehicle
established to make strategic investments in a diversity of

categories in the Sub-Saharan African region.
The
Board of Directors (BOO) has been well constituted and balanced in
that: Mr. Khulubuse Zuma (Chairman)
Mr.
Zondwa Mandela (Managing Director)
Dato'
Raja Zainal Alam Shah (Executive Director) Malaysia Mr Sheshile
Ngubane (Executive Director)
Mr.
Abdulla Be/hou/ (United Arab Emirates) UAE
Non-Executive
Director will be appointed on the 1st August 2009 The company is a
South African based BEE company
Aurora
Empowerment Systems (Pty) Ltd purchased 71% (seventy one percent)
being the controlling interest of Cenmag Limited, a public
company
listed on the Johannesburg Stock Exchange (JSE).
This
was in line with the BOD strategic acquisition program, and thus
allowing for more transparency as well as the highest level
of
Corporate Governance associated with a listed company.
The
BOD make the company a global player in the truest sense since, the
Malaysian Director and Shareholder has been knighted by
the king as
Sir ('Dato] as well as being a seasoned and respected banker,
setting up not only Maybank (Malaysia's largest bank)
but also,
Al-Rajhi Bank, Saudi Arabia's largest Islamic bank.
Aurora's
acquisition of the largest Sawmill in the Southern Hemisphere,
Redwood Timber Merchants Limited, with its timber concessions
has
propelled the company to the forefront of global timber supplies with
the core focus being The Gulf and Far-Eastern Markets.
Aurora
with its strong links to the Gulf and Far-East is positioning itself
as a major player in the commodities supply market.
Aurora's
mission statement: to be a major contributor in the main stream of
the Southern Africa economy: To not only assist in
the job creation
initiatives, but to also preserve existing employment opportunities
at grass-root as well as national level.
With
the current Pamodzi Gold Orkney Operations (PGOR) being a major
source of employment in the North-West Province, it is imperative

that an operator with a long term view enters the fray in order to
resuscitate PGOR.
Aurora
also realizes that PGOR is the largest employer in the area where the
official unemployment rate already exceeds 40% (Forty
Percent)
Aurora
is the most suitable operator in that it will recruit the most
experienced management as well as necessary technical expertise
to
maximize stakeholder interest which in tum will ensure long-term
sustainability and stability.
Aurora
is of the firm belief that the key to PGOR existence in the short and
medium term and survival in the longer term is a Capital
investment
program. This to be in the form of completion of shaft 2 high grade
area as well as the planned completion or upgrade
of shaft 1 and
shaft 3 pillars respectively. This, together with the increase in
volumes of shafts no.4 and shaft no 7, which
consists of lower grade
material, will be a major contributing factor.
The
current shaft 7 which is a major contributor to PGOR income stream
and is currently unable to sustain the area is of definite
need of
shaft satellite pillars, this being part of Aurora's expansion and
upgrade programme. The life of the Mine will therefore
also be
increased to 2025.
The
drop in shaft no.3 Ore grade and ultimately income is as a result of
the depletion of the pillars which would make the end of
the mine of
shaft 3, 2010.
Aurora
will replace new blocks and satellite shaft pillars which will result
in a sharp increase in production as well as the life
of the mine.
The
research and Development team of Aurora have estimated an amount of
ZAR 150 000 OOO(one hundred and fifty million) would be
required as
short­ term Capex to ensure the sustainability and enhance long
term life of Mine expectancy of PGOR
The
above examples are to illustrate that the key to the Life of the Mine
as well as sustainable profitability is the driving force
to secure
long term Employment at PGOR.
Structure
of offer
Aurora
will not retrench any of the permanent employees of PGOR being
approximately 1500(one thousand five hundred) employees.
Aurora
will re-employ with new packages and under acceptable terms and
conditions in line with current market remuneration packages
all
staff of PGOR.
Aurora's
Social and Labour plan (SLP) will include an aggressive share
incentive scheme which will be implemented by Price Waterhouse

Coopers.
This
will incentivize the current as well as future employees at company
level as well as group level.
The
share incentive scheme will ensure a sense of belonging as
well as reward staff financially.
Aurora
believes in empowerment in the true sense of the word.
Aurora
Gold Orkney Community Trust (AGOCT) will be formed with the sole
purpose of uplifting the community, This will include, as
a matter of
priority, a Health care services plan.
Apart
from this being provided by in-house company clinic facilities, it is
imperative that hospitals and mobile clinics be accessible
to the
community at all times.
AGOCT
will provide in-house funding for program such as: Housing
development for first time home-owners.
Bursaries
for dependants of staff members,
Subsidies
on tertiary as well as secondary education for dependants of
employees.
Aurora
is of the firm belief that the basic human right is the right to own
home. This we will vigorous endeavour to make sure each
employee has.
Aurora
understands that it will acquire the environmental rehabilitation
liabilities associated with the purchase of PGOR.
In
this regards Aurora will implement a strict Environmental Protection
plan.
An
EMP committee will be set up solely with the task of Environmental
Rehabilitation with the knowledge that we have a responsibility
to
preserve the status of the environment.
Sufficient
resources will be provided to ensure that environment risks are
minimized and public welfare is protected during and
long after our
mining activities have stopped.
Aurora
will be a firm supporter of the Conservation trust.
The
capital requirements for expansion, which we have envisaged at ZAR
150 000 000 (one hundred and fifty Million Rands Only) will
be
invested in much needed development of new blocks and upgrading of
existing blocks.
Aurora
hereby tenders an offer of ZAR 215 000 OOO(Two Hundred and Fifteen
Million Rands) for PGOR.
This
offer will be either for the assets of PGOR or in terms of section
311 of the insolvency act.
Aurora
will engage into a management agreement with thejoint Liquidators of
Pamodzi Gold Orkney to manage PGOR from the 151 September
2009
whereby all profits, if any will be shared on a 50/50 basis. Losses
are for the sole account of Aurora.
The
above offer is subject to the following: Conditions Precedent
The
mining license being transferred to Aurora Empowerment systems.
PGOR
are in possession of a new order Mining Rights which will be
transferred to Aurora in the event of a section 311 compromise
not
being pursued.
Aurora
task team is allowed full access to all facilities and operations
whilst formal DME approvals are in progress. This includes
but not
limited to shaft inspection by Aurora's designated mining and
geological experts, meetings with employees and recruitment
of
further necessary expertise as well as any other access to ensure the
smooth transition.
Aurora
being able to formally commence mining operations by not later than
1st November 2009, this due to the fact that any further
delays could
cause asset quality deterioration which in tum could result in Aurora
having to incur additional and unanticipated
Capex costs.
JSE
approval of the transaction.
Payment
Terms
Aurora
will raise via a rights issuance and vendor placing in its
Johannesburg Stock Exchange (JSE) listed company an amount of
ZAR 200
000 000 (Two Hundred Million Rands).
Aurora
will pay in cash the amount of ZAR 15 000 OOO(Fifteen Million Rands).
We
also attach a copy of the Standard Bank High Level Due Diligence pack
in respect of Pamodzi Gold Limited, which we considered
carefully in
preparing this offer (Attachment A):
We
await your positive reply Zondwa Gadaffi Mandela Managing Director
21.
The second bid is couched in largely identical terms as the first. It
records that Mr Hulley has been appointed as a non-executive

director, but omits the name of Mr Abdullah Belhoul as a
non-executive director. It underlines that Aurora is well capitalised

to fund the second offer.
22.
In the discussion that follows, it must be borne in mind that the
first respondent apparently did not participate in the preparation
of
the bid documents and may have been unaware during the period June
2009 to November 2009 of the serious problems that existed
in
Aurora's management of the mines from the outset. Where reference is
made to 'the respondents' in respect of any occurrence
prior to
November 2009 the first respondent is not included in that
collective.
23.
There are several statements contained in the two bid documents that
do not represent the true state of Aurora's affairs. Aurora
had not
acquired any shares in Cenmag and did not control this listed
company. Its directors had, without having invested a single
cent in
the former, concluded a contract for the acquisition of the majority
shareholding that was entirely dependent upon funds
being provided by
outside parties, either in cash or in shares in another company. The
statement that this acquisition was '...
in line with the BOD's
strategic acquisition program ...' turning the company into a ' ..
global player
...'
is the figment of an overactive imagination. Aurora was hardly doing
any business at all at this moment.
24.
The further claim that Aurora had acquired ' the largest saw mill in
the Southern hemisphere ... ' is similarly devoid of factual
content.
Again, a contract had been entered into without any financial
wherewithal whatever and its implementation was similarly
dependent
upon finding outside investors prepared to fund the
transaction. The assertion that Aurora had been '

...propelled into the forefront of global timber supplies ... ' was
and remained untrue.
25.
Aurora had no strong links to the Gulf States or the Far East and had
no share whatever in the global commodities supply. It
had no capital
at all - other than the sum of R 15 million borrowed by the fourth
and fifth respondents from members of their family
and the community
at about the time Aurora took over the running of the mines. Aurora
was unable to invest in any venture, let
alone fulfil the promises to
keep the work force of the insolvent mines in employment over the
short and medium term or maintain
the mining operations of the
companies that were in dire financial straits. The fact that the
first respondent contributed R 35
million at a later stage did not
change that position.
26.
The statement in the second bid document that Aurora was sufficiently
liquid to enter into the transaction was also false.
Aurora was in
fact already insolvent at that stage.
27.
It is necessary to observe in this context that not one of the
respondents had any personal experience of mining activities.
There
is no evidence of any inspection or due diligence that was conducted
by the respondents other than to consult Standard Bank's
team that
assisted the applicants in introducing the mines to the market.
Reliance was placed upon the opinion of Mr Stander,
who is a mining
expert, but not one of the respondents appears to have acquainted
himself with the mines themselves other than
in the most cursory
fashion.
28.
The respondents' approach to financing the promises made in the bid
documents demonstrates a surprising lack of acumen, insight
or care.
The statement ' Aurora will raise via a rights issue and vendor
placing in its Johannesburg Stock Exchange (JSE) listed
company an
amount of ZAR
200
000 000 (Two Hundred Million Rands) ...' is a far-fetched and
factually entirely unwarranted claim. Aurora did not possess or

control any listed company at that stage, let alone a listed entity
with sufficient equity to attract 200 million Rand on a
rights
issue. It has remained unexplained on what financial foundation the
promise would be realised that the management of the
mines would be
conducted by Aurora on the basis that profits would be shared equally
with the liquidators, while all losses would
be carried by Aurora.
29.
By the same token it is unclear how the respondents would finance the
capital expenditure of at least R 150 million in the short
term. The
'Research and Development team of Aurora ...' has also not been
identified, nor have any documents, facts or figures
been produced
that would substantiate the existence and activities of such team.
30.
The document further records that large scale - and therefore very
costly - socio-economic projects would be undertaken, again
without
any indication how such funds would be generated other than by
investor funds.
31.
This investor was said to be AME, allegedly a company based in
Malaysia, one of whose directors was Shah, who also served on
the
Aurora board of directors. AME provided two letters referred to
above confirming its intention to provide R 200 million
for the
acquisition of the Orkney mine and R 350 million for the acquisition
and capitalisation of the Pamodzi Gold East Rand operations.
Both
letters confirmed that the .funds would be made available against a
subscription of shares in Aurora or its JSE listed nominee.
It has
never been disputed that these conditions attached to the offer made
by AME. These conditions Aurora, at that stage an empty
shell, was
patently unable to fulfil. It is a matter for comment that not a
single document evidencing any detail regarding the
proposed
investment, the manner and fashion of its execution, its terms and
conditions, guarantees or particulars of appointments
to the board or
staff of the intended listed entity has been referred to in the
entire saga of Aurora's involvement with the insolvent
companies.
Apart from Shah having allegedly inspected the mines, AME does not
appear to have conducted any investigation into the
mines or Aurora's
capacity to administer them prior to the letters having been drafted
in September and October 2009.
32.
As was stated above no funds were forthcoming from AME at all. By the
time the liquidators' attorneys sent a letter of demand
to AME,
serious problems had developed on the mines. There had been two
fatalities caused by underground accidents, threatened
closure of the
mines' entire operation and labour unrest because of shortfalls in
the remuneration of the workforce. After having
received the
attorneys' letter demanding compliance with their undertaking, AME
through Shah met with the liquidators and thereafter
formally
communicated its withdrawal from the project because of Aurora's
failure to comply with the conditions to facilitate a
rights issue or
transfer its shares to the investor. To these alleged breaches were
added ' ...the poor state of the (mines')
assets, woeful corporate
governance, lack of transparency of financial affairs and integrity
of management staff ...' and lack
of essential financial information
and detailed accounting reports as reasons for AME's refusal to fund
the transactions.
33.
In the light of the above facts there can be little doubt that AME
was fully justified in refusing to commit millions to a project
that
never progressed from grand dreams to hard fact. The assertions made
in the bid documents lacked any foundation in reality.
The
respondents committed Aurora to expenditure totalling R 550 million
for the acquisition of assets that were at that stage already
in
serious prolonged financial distress without the company having a
single cent to its name. Aurora was insolvent from the moment
the
offer for the Pamodzi mines was accepted and never emerged from that
condition.
34.
The respondents either did not appreciate the very grave implications
of the offer the directors made, or did not care about
the
consequences that a fanciful and ill-founded approach to the
transaction must have. The lives of thousands of miners and their

dependants would and must be directly affected by any agreement
entered into concerning the insolvent mines. Other than money
lent
from the community and funds to the tune of R 35 million contributed
after the offer by the first respondent, the respondents
and Aurora
had nothing to offer the provisional liquidators that could have
contributed to the rescue of their insolvent charges.
What gold was
mined was certainly not enough to fund the operations of the mines
and according to the applicants, millions earned
by the short-lived
production under Aurora's management have been left unaccounted for -
although this claim is in dispute.
35.
The respondents must have appreciated at all times that they would
be unable to meet the conditions AME had set before any
funding would
be forthcoming. Aurora could never offer any equity in its shares and
never controlled a listed entity with sufficient
financial muscle to
meet the obligations they undertook before the AME deal collapsed.
The entire project was and remained a pipedream
- with disastrous
consequences for many individuals who depended upon the fulfilment of
the promises the respondents made without
any prospect of being able
to keep them.
36.
The respondents must have known from the first moment that they would
wreak havoc in the miners' lives through their actions,
yet they
pressed ahead. In doing so they were neither honest in respect of the
undertakings made in the bid documents, nor did
they act at any stage
as prudent and reliable businessmen. Their disregard for the
consequences of their actions, both in respect
of the insolvent
companies and in respect of the mines' workforce, was indisputably
reckless.
37.
This disregard for the consequences of their actions was demonstrated
further when the AME transaction fell through. The third
respondent's
assertion that none of the respondents ever visited the mines again
after March 2010 has never been disputed. Apart
from one or two
payments made out of first respondent's own resources at the
insistence of Solidarity, the workforce was abandoned
and left
destitute.
38.
After the AME transaction fell through the mines went into an
accelerated decline. The mines were put into care and maintenance
at
the end of March 2010. Assets were lost, either by theft, as the
respondents would have it, or by unlawful actions on their
part, as
the applicants allege. The respondents did next to nothing to
alleviate the plight of the miners or the continued decay
of the
mines, other than to attempt to find new funders, without success.
39.
The respondents repeatedly state in their answering affidavits, and
did so also during argument, that they reasonably expected
their
efforts to secure funding to come to fruition and that their actions
are justified by this reasonable expectation. This argument
is
fallacious. As has been demonstrated above the respondents could
never have been under the impression that they had met the

conditions AME had imposed for the funding to be advanced. After the
end of March 2010 the steadily worsening condition of the
mines
nullified any realistic prospect of finding a financial fairy
godmother to supply the funds Aurora had committed itself to
invest.
40.
The respondents argued that the Shandong Gold transaction was on the
verge of being consummated when the applicants cancelled
the Aurora
contract and that the latter are therefore solely to blame for the
failure of the project. Apart from the respondents'
say-so there is
nothing to support this assertion on the papers. As is the case with
all the other transactions that failed, the
respondents have
presented no supporting affidavit, no documents, no letters, no
memoranda of understanding or draft agreements
to bolster their
stance. Transactions that are entered across borders for millions of
Rand are not concluded orally. If Shandong
Gold had been seriously
interested in Aurora's proposition there would be a paper trail.
Absent the same the mere allegation of
imminent success cannot be
accepted.
41.
Had the respondents' approach to concluding the original transaction
been reckless - if not fraudulent -, their management of
the mines
and their inaction after March 2010 to attend to the ever-worsening
situation of the mines was no better. Their complete
disregard for
the consequences of their failure to implement the original
transaction is inexplicable other than that they could
not care at
all about the damage they had caused. They should have - as should
the liquidators - acted to limit further losses
at the latest by
terminating the agreements for the acquisition of the mines no later
than March 2010 at the very outside and placing
the mines on auction,
if no other purchaser could be found.
42.
To the above failures must be added the fact that the respondents did
not honour the ITCMA agreements at all. They failed to
manage the
mines properly, they failed to account to the liquidators, they
failed to maintain the workforce, they failed to ensure
the mines
safety - in short, they are guilty of numerous breaches of the
agreements.
43.
To sum up: The second to fifth respondents are guilty of wilful
deception by presenting the bid documents containing numerous
false
assertions to the liquidators. They are further guilty of reckless
management of Aurora's affairs from the inception of the
ITCMA
agreements to the date of cancellation thereof. The applicants are
therefore entitled to the order they seek against them
both on the
basis of fraudulent misrepresentations in the bid documents and on
the grounds of the reckless conduct of the insolvent
companies'
business, see: Fourie v Firstrand Bank Ltd and Another NO
2013 (1) SA
204
(SCA).
44.
It should be added that the fourth and fifth respondents made common
cause with the second and third respondents in their
opposition to
the application and never denied that they had been deeply involved
in Aurora's management even after the purported
cancellation of
their contract with the insolvent company. Other than the first
respondent they never claimed to be entitled to
separate or special
consideration on the grounds of having had a lesser degree of
involvement with the guiding of the company's
affairs than the
other directors or managers. The fourth to fifth respondents must
therefore be held liable in equal measure
as the second and third
respondents.
45.
The first respondent is in a slightly different position from the
other respondents. It is common cause that he was not involved
in the
day to day management of Aurora's business. He was not directly
involved in the negotiations with the liquidators and was
informed
from time to time by the other respondents or Hulley about the state
of affairs. His position must therefore be judged
in the light of his
personal circumstances and knowledge of the Aurora affairs:
Fisheries Development Corporation of SA Ltd v
Jorgensen and Another;
Fisheries Development Corporation of SA Ltd v AWJ Investments (Pty)
Ltd and Others
1980 (4) SA 156
(w) at 165F - 166F. It is not
suggested, however, that he was not fully informed of the serious
problems that developed almost
from the outset in Aurora's management
of the mines. He must have known of the difficulties that arose
toward the end of 2009
and cannot have been unaware of the Department
of Minerals and Energy's notice to close down the Grootvlei mining
operations in
November of that year. It is not disputed that
political clout was exercised to have this order ameliorated. The
first respondent
was clearly one of the two directors who could bring
political connectivity to the table and must therefore have known
of the
crisis that confronted the proposed transaction. In addition,
he was prevailed upon to make R 35 million of his own funds available

to tide the ailing business over. At least some of these funds were
devoted to the payment of security services. He did know,
therefore,
that the mine assets were at risk It was therefore at the very
latest during November of 2009 that he was aware of
serious trouble
in Aurora's affairs. He participated in the efforts to find new
funders once the AME transaction fell through.
He has not denied
being aware of the increasing volume of negative reports appearing in
the media about Aurora's involvement with
the insolvent mines. He met
with Solidarity's representatives who informed him of the miners'
plight, persuading him to make a
contribution to their salaries. He
was put upon inquiry at the latest at the end of 2009 and cannot be
heard to protest his ignorance
of the true situation after that date.
His failure to act once he knew of the dire state of affairs is
clearly a reckless disregard
of his duties as a director. If he
really did not know, it is because he deliberately chose not to be
informed. Such an approach
constitutes recklessness - see Stone v
Cronje, supra, at 609F to 615J - and the first respondent should
therefore be held liable
for all losses that were incurred on or
after the 1st December 2009.
The
report of the inquiry's chairperson
46.
The chairperson of the inquiry conducted in terms of sections 417
and 418 held in his report that the first respondent should
be
exonerated of all liability because of his justifiable ignorance of
Aurora's affairs. Not surprisingly, the first respondent
adopts the
stance that the court should accept this finding. Reliance for the
submission that the court should regard itself as
bound by the
chairperson's finding was placed upon the decision of Anderson and
Others v Dickson and Another NNO (lntermenua (Pty)
Ltd Intervening)
1985 (1) SA 93
(NPD) at 110 I to 111 F. This judgment is not in point
as it deals with judicial intervention in the conduct of the inquiry,
not
with the notion that the chairperson's report could be regarded
as binding upon a court of law.
47.
The chairperson's report is no more than exactly that - a report,
an expression of an opinion on matters that were investigated
by the
commission of inquiry. It is inadmissible unless it contains verbatim
evidence given by a witness, against whom such evidence
might be
admissible. The report is certainly not binding upon a court of law.
48.
There is therefore no impediment to a legal conclusion being drawn
based upon the evidence presented before the court that differs
from
the recommendations contained in the inquiry report.
Did
the provisional liquidation of the mines cause the loss of the
mining rights?
49.
The insolvent companies all were holders of mining rights. The
first respondent submits that the companies lost these rights
upon
their provisional liquidation. Reliance is placed in this respect
upon section 56 (d) of the Mineral and Petroleum Resources

Development Act 28 of 2002 ('MPRDA'), which determines that any
right, permit or permission granted or issued in terms of the Act

shall lapse upon the holder thereof being '..liquidated or
sequestrated..'. The same applies in terms of sub-section (c) upon
deregistration of a company, see Palaia Resources (Pty) Ltd v
Minister of Mineral Resources and Energy and Others
2014 (6) SA 403
(GP); but see New/ands Surgical Clinic v Peninsula Eye Clinic (Pty)
Ltd
[2015] 2 All SA 322
(SCA). Once lost by deregistration, the
former case held, the right does not revive upon the company or close
corporation being
restored to the register. The application of the
ratio of the Supreme Court of Appeal decision may lead to a different
result.
50.
It is clear, however, that the Legislature intended the mining right
to lapse once a corporate entity or an individual holder's
ability to
deal with such right was finally terminated. As to the finality of
deregistration (if no application is made for restoration
to the
register) see Miller and Others v NAFCOC Investment Holding Co Ltd
and others
2010 (6) SA 390
(SCA). It is for this reason that the
definition of a 'sequestration order' in
section 1
of the
Insolvency
Act 24 of 1936
; or of a 'winding-up order' in section 1 of the
Companies Act 61 of 1973 has not been adopted by the MPRDA. Both the
aforesaid
acts specifically extend the meaning of the word describing
the final demise of the holder's control of his, her or its affairs

to the provisional order preceding the relevant individual's, or
corporate entity's commercial end. The fact that the law giver
has
not included a similar definition in the MPRDA is a clear indication
that the lapsing of a mineral right only occurs upon final

liquidation or sequestration. It is clear that any provision that
would cause the loss of a mining right upon the granting of a

provisional order of sequestration or liquidation would lead to
administrative chaos and could cause severe and irrevocable
commercial
damage and prejudice to shareholders, employees and
creditors alike. No final liquidation or sequestration is granted
without
prior service of the relevant papers upon the entity
concerned, whereas provisional liquidation or sequestration orders
being granted
upon ex parte applications are not uncommon at all.
More often than not, these orders are set aside on or before the
return day.
To allow mining rights to lapse after a provisional order
had been granted would invite grave injustice.
51.
It is therefore only a final liquidation order that will lead to the
loss of a mining right. The applicants as provisional liquidators

were therefore the lawful holders of the insolvent companies' mining
rights.
Could
the provisional liquidators have lawfully transferred the mining
right?
52.
The first respondent argues that the transfer of the mining rights
the companies held could not be effected unless and until
the
Minister of Minerals and Energy had granted her written consent to
such transfer. Absent thereof, the argument runs, there
never was any
agreement to transfer the mines to
Aurora.
The successful transfer of the mining rights is described by the
first respondent as a condition precedent which was never
fulfilled
and hence there never was an enforceable agreement.
53.
The clauses that are described as conditions precedent in the bid
documents do not support this assertion:
The
mining license being transferred to Aurora Empowerment systems.
PGOR
are in possession of a new order Mining Rights which will be
transferred to Aurora in the event of a section 311 compromise
not
being pursued.
Aurora
task team is allowed full access to all facilities and operations
whilst formal DME approvals are in progress. This includes
but not
limited to shaft inspection by Aurora's designated mining and
geological experts, meetings with employees and recruitment
of
further necessary expertise as well as any other access to ensure the
smooth transition.
Aurora
being able to formally commence mining operations by not later than
1st November 2009, this due to the fact that any further
delays could
cause asset quality deterioration which in tum could result in Aurora
having to incur additional and unanticipated
Capex costs.
JSE
approval of the transaction.
S4.
It is clear that any compromise in terms of section 311 could only be
entertained once funding had become available. While funding
was
still expected to be made available the ITCMA agreements were entered
into as an express interim measure. Aurora was appointed
a de facto
contractor in terms of section 101 of the MPRDA.
SS.
Inasmuch as the consent of the Minister was required for the lawful
transfer of a mining right - which stage was never reached
in the
current saga - it only needed to be given within 60 days after the
transfer to a competent holder, a provided for in section
11 (4) of
the MPRDA, as amended.
The
applicants' claims
56.
The applicants rely on two claims that were proved at the first and
second meeting of creditors. The enforceability of these
claims is
disputed by the respondents on the grounds that the claims are
illiquid and should not have been admitted to proof at
all. In
addition, the proposition is advanced that proof of a claim at a
meeting of creditors does not in itself establish the
validity
thereof.
57.
The first claim is for the payment of a specific sum of money in
respect of gold production that, according to the applicants,
was not
properly accounted for. As framed in the documents presented for
proof of the claim, and accepted by the presiding officer,
the claim
is certainly liquid. That fact should in itself put an end to the
objection against the applicants' locus standi. Whether
the
applicants will be able to prove the full amount of the claim is a
different question, but if it is born in mind that section
424 of the
old Companies Act 61 of 1973 does not require a creditor to prove
any claim in insolvency to invoke the section it
is clear that the
objection to the recognition of the claim is ill­ founded.
58.
The second claim based upon the disappearance of the insolvent
companies' assets may be difficult to quantify. As is apparent
from
the facts set out above, however, the assets disappeared on Aurora's
watch, which renders the respondents at least prima facie
liable for
the damage, even if it is only on the basis that they failed to
protect what had been entrusted to them. The claim,
after initially
being rejected as illiquid, was compromised by the Aurora liquidators
in terms of
section 78
(3) of the
Insolvency Act 24 of 1936
and duly
accepted to be proven, which is the consequence of compromising a
claim in this fashion. There can therefore be no doubt
about the fact
that the claim is duly recorded as such.
59.
This is not the end of the applicants' obligation to establish the
quantum that they may actually be entitled to. It must be
born in
mind that they have, for purposes of the present proceedings, sought
no more than a declaratory order that the respondents
are liable to
them for such damages that may be proven at a later stage. As
provisional liquidators they are not in the same position
as a trade
creditor seeking to prove the exact amount of a liability the nature
and extent whereof should and would normally be
within such
creditor's ready knowledge. Hence the trade creditor can validly be
expected to be able to prove the exact amount
owing and due to her or
him in the pursuit of relief in terms of
section 424:
Retail
Management Services (Edms) Bpk v Schwartz
1992 (2) SA 22
0,N) at 28.
The provisional liquidators, even though they represent creditors,
are not in the same position and can therefore
lawfully defer the
quantification of what may be due to them in their representative
capacities to later proceedings and seek no
further relief than a
declaratory order that respondents are liable for damages still to be
established later: Cronje v Stone,
supra; Terblanche NO and others v
Damji and Another
2003 (5) SA 489
(C).
60.
It was further suggested that the proof of the applicants' claims was
tainted because the Aurora liquidators had allowed themselves
to be
unduly influenced by the applicants and had surrendered their
independence, particularly because they accepted the services
of Mr
John Walker, the attorney acting for the applicants, at the
applicants' cost. There exists no factual basis for this allegation.

As far as is known, no creditors other than the applicants have
proven claims in the Aurora insolvency. There is no suggestion
that
Aurora is possessed of any assets. No claims could therefore be
endangered, and no creditors' rights could be prejudiced
by this
agreement. There is no merit in this complaint.
61.
It must also be born in mind in this connection that a creditor need
not prove a claim at a meeting of creditors at all in order
to invoke
the provisions of
section 424
of Act 61 of 1973, indeed, it is not
even necessary to liquidate a company before errant directors and
managers can be held accountable
for reckless or fraudulent conduct:
Mafeking Mail (Pty) Ltd v Centner (No1)
1995 (4) SA 603
(W).
The
alleged irresoluble disputes of fact
62.
There are repeated references in the papers, and it was argued during
the hearing, that there existed disputed factual allegations
in the
affidavits that would prove to be incapable of easy resolution
without oral evidence. The conclusions that must be drawn
from the
chronology summarised in par 16. above proves the contrary. There is
no material dispute about the salient facts and occurrences;
least of
all in respect of Aurora's indubitable insolvency and the root causes
thereof: Gainsford and others NNO v Tanzer Transport
(Pty) Ltd
2014
(3) SA 468
(SCA) at par [22] - [26]. The court experienced no
difficulty in coming to the conclusions that were inevitable in the
light of
the common cause facts.
The
following orders are therefore made:
1.
The second, third, fourth and fifth respondents are declared to be
liable, in terms of section 424 of Act 61 of 1973, jointly
and
severally, in their personal and private capacities, the one to pay,
the others to be absolved, for all liabilities which the
applicants
may be able to establish, incurred by Aurora Empowerment Systems
(Pty) Ltd to Pamodzi Gold Orkney (Pty) Ltd; Pamodzi
Gold East Rand
(Pty) Ltd, Nigel Goldmining (Pty) Ltd, The Grootvlei Proprietary
Mines Ltd, Consolidated Modderfontein Mines Ltd
and Consolidated
Modderfontein Mines 1979 (Pty) Ltd; (all of which are in provisional
liquidation);
2.
It is further declared that the first respondent is liable, in his
personal and private capacity, to the applicants for all of
Aurora
Empowerment Systems (Pty) Ltd's liabilities to all the companies in
provisional liquidation listed in order 1. above,
of which the
applicants are the provisional liquidators, which liabilities arose
on or after 1 December 2009; jointly and severally
with the second,
third, fourth and fifth respondents, the one to pay, the others to be
absolved;
3.
The respondents are ordered to pay the applicants' costs, jointly
and severally, the one to pay, the others to be absolved.
Such costs
are to include the costs of two counsel.
Signed
at Pretoria on this 25th day of June 2015.
E
BERTELSMANN
Judge
of the High Court