The outlook for creditors hoping to recover their dues from the liquidated Classic Financial Services One seems grim. According to the preliminary findings of the section 402 report, the company faces a significant shortfall, with its liabilities far outweighing its assets.
Cobus Geldenhuis, director of Classic, was debarred in 2009 for dishonesty but continued his business through Classic.
On 22 August 2022, Nico Retief filed a complaint with the FSCA, accusing Geldenhuis of soliciting investments from the public. An investigation found that Geldenhuis operated a Ponzi scheme, misusing clients’ funds for personal gain.
The FSCA’s report, released on 22 May 2023, found that between January 2019 and May 2023, Classic received more than R617 million from about 1 120 investors, with R129.9m unaccounted for.
During the FSCA’s investigation, Geldenhuis admitted that the business’s purpose was to steal money, and no client funds had been invested since the company’s inception in 2011.
Read: Classic Financial Services director and wife’s R66m gambling spree
On 30 May 2023, the High Court in Pretoria issued a final liquidation order against Classic, and WJ Venter, JA Fisher, and SJ McKenzie were appointed as the final liquidators.
Section 402 of the Companies Act outlines the requirements for the liquidator to prepare a report for the creditors and contributories (shareholders) of the company in liquidation. This report, known as the section 402 report, typically includes details of the company’s financial position, the causes of its insolvency, and the actions taken by the liquidator. The report aims to provide transparency and accountability to stakeholders involved in the liquidation process.
The section 402 report shared with creditors today shows an estimated shortfall of R70 401 371.97 – excluding administration expenses – between the company’s assets and liabilities as of the liquidation date.
Regarding share capital assets, there are no encumbered assets –those subject to legal claims or restrictions as collateral for loans. Unencumbered assets – those free from legal claims or liens – are listed as R30 668 659.60 recovered to date, with about R174m noted as “possible recovery and subject to change”.
The total assets amount to R204 668 659.60.
For share capital liabilities, there are no secured creditors – those with a legal claim on specific assets as collateral. The South African Revenue Service (SARS) is the only listed preferent creditor – those with a legal right to be paid before other creditors – but the amount owed to SARS is listed as “unknown”.
The total liability for concurrent creditors – those with unsecured claims – stands at R275 070 031.57.
A financial institutions legal snapshot by Norton Rose Fulbright explains that concurrent claims must be proved at the creditors’ first or second meeting with the liquidator/trustee, and concurrent creditors are paid out in proportion to the amounts each creditor was able to prove.
Thus far, a total of 118 claims were submitted at the first creditors’ meeting held on 22 August 2023. The second creditors’ meeting will be held on 3 September.
When Moonstone inquired in June what the final count of creditor claims was, Jacques van Heerden, an attorney representing the joint liquidators, said a final count of creditor claims could not yet be provided because new claims were being filed daily.
Honey Attorneys highlights the danger of contribution in liquidations. When an insolvent company or individual’s assets are sold to cover debts, and it is clear that these assets are insufficient to meet the administration costs of the estate, a shortfall occurs. In such cases, creditors who have proven claims against the estate will be liable to contribute to these costs on a pro-rata basis, relative to the value of their claims.
Recovery of assets
The amount creditors can expect to recover from their claims, and whether they will be required to make a contribution, will hinge on the liquidators’ ability to track down additional assets – a process that involves its own costs.
In a letter sent to creditors in October last year, the joint liquidators notified “all affected parties” that they had initiated section 417 inquiries and were investigating various individuals linked to the insolvent estate. Section 417 of the Companies Act allows the Master or the High Court to convene an inquiry after a winding-up order to gather information about the company’s trade, dealings, and property.
The letter noted that the section 417 inquiries had enabled the liquidators to recover “numerous assets” that had been dissipated through questionable transactions, benefitting the general body of creditors.
In June, Van Heerden mentioned the challenge of accurately itemising the assets because they were distributed across various accounts.
To date, the joint liquidators have successfully applied for the sequestration of Geldenhuis’s personal estate, as well as those of his former wife, Jackie, and his son, Dewald. Geldenhuis’s residence has been repossessed and sold at auction, and all movable assets belonging to him and Jackie have been reclaimed.
Additionally, an interim sequestration order has been granted against Tony Visser, an associate of Geldenhuis and director of Summit Renewables, who received a R19m loan. There is also a pool of preserved funds totalling about R21m.
Read: Forensic audit traces Classic Financial Services’ missing millions
On 25 October 2022, the National Prosecuting Authority (NPA) obtained a preservation order in the High Court to safeguard:
- R399 198.88, with interest, in an Absa account held by Classic;
- R10 395 192.44, with interest, in a Nedbank account held by Classic;
- R3m, with interest, in an FNB account held by Jackie Geldenhuis; and
- R5 750 000, with interest, in a Nedbank account held by Murry Pierce Kilgour.
A second preservation order was granted for R1 646 883.96, with interest, in an FNB account in the name of Classic.
While the section 402 report does not detail these recoveries, it does state that “various inquiries were held where movable and immovable assets and funds were recovered and claimed by the liquidators other than the normal recovery of debts”. The report adds that the liquidators also instituted sequestration and liquidation applications against “various entities and companies involved”.
“Enquiries into the affairs of the company will proceed until such time that all assets and funds have been accounted for.”
As to the progress prospects of the winding up, the report states that a first liquidation account will be submitted to the Master once the second creditors’ meeting has been finalised.
Draft resolutions numbered 1 to 30 will be submitted for consideration and adoption by creditors at the second meeting, together with the report.
“Creditors are requested to adopt these resolutions so that the administration of the affairs of the company in liquidation be finalised,” the report states.
