Creditors who filed claims in the bankruptcy of BHI Trust have a tough call to make in the next two weeks: should they keep investing money in a sunken vessel or jump ship?
Craig Warriner, the fund manager and a trustee of BHI Trust, turned himself into the authorities last October, confessing to misusing the trust’s funds. News24 reported that, according to the State’s charge sheet, Warriner has confessed to defrauding about 220 people of an estimated R1.18 billion in a pyramid scheme that started in January 2013 before it collapsed in August 2023. However, figures provided by the joint trustees of the sequestrated trust suggest that the number of affected investors may exceed 800, with losses above R1.6bn.
The High Court in Johannesburg provisionally sequestrated the trust on October 25 last year. Shortly thereafter, Gert de Wet and Sumaya Mohamed from Kaap-Vaal Trust were appointed as joint provisional trustees (JPTs) by the Master of the High Court.
On 7 February this year, BHI Trust was formally sequestered. The Master issued a certificate officially confirming De Wet and Mohamed as final trustees on 15 April.
In the fourth circular shared with creditors a few days earlier, it was stated that 823 creditors had thus far filed claims totalling R1 639 015 924.53.
The initial creditors’ meeting took place on 3 April at the Randburg Court. But, according to the meeting’s minutes, proof of these claims was withdrawn after creditors’ representatives were informed that contributions might be required.
In the circular, the trustees advise the creditors they believe “that a contribution will currently be levied against creditors until such time that sufficient recoveries are made for the benefit of creditors” and to reduce administration costs.
It goes on to state that creditors’ claims will be presented for proof at the second meeting of creditors.
The circular informed creditors that, as contemplated in terms of section 51 of the Insolvency Act, they could withdraw claim/s proved against the estate – claims that have a clear contribution instruction will not be tendered at the second meeting of creditors.
Alternatively, if the creditors do decide to go ahead, trustees will accept their claims (if permitted). Once the claims are accepted, creditors will have seven days to inform the trustees in writing if they change their mind about wanting to pursue the claim.
This leaves creditors with a difficult choice: double down or stand down.
In the worst-case scenario, creditors might suffer substantial financial losses if the trust’s recovery of assets falls short of covering all debts. They could receive only a fraction of what they’re owed or nothing at all. Prolonged legal proceedings could add to the expenses and uncertainty.
Conversely, efficiently recouping the trust’s assets at their highest value could provide enough funds to repay all the creditors in full. Any extra money could cover outstanding costs.
The second creditors’ meeting has since been scheduled for 15 May.
Efforts under way to trace and retrieve misappropriated funds
The Financial Intelligence Centre temporarily “froze” just under R5 million held in a Nedbank account in the name of BHI Trust in October. The attachment directive was set for the period 27 October 2023 to 9 November 2023. At the time, the JPTs informed the creditors that they had requested Nedbank to pay these funds over to BHI Trust’s estate account.
At the time of publication, Moonstone was unable to confirm whether the trust had been successful in its request.
An inquiry in terms of section 152 of the Insolvency Act was also initiated late last year. Numerous subpoenas were issued for various parties involved with BHI Trust to provide information, documentation, and testimonies on the financial affairs of BHI Trust. The first of these sittings was held between 6 and 8 December 2023 and continued on 12 April.
According to the trustees, “the main purpose of the inquiry is to obtain information as to how creditors’ money was dealt with, to identify further transaction/s that needs to be set aside in accordance with the applicable law/sand the collection of assets/funds due to the trust”.
Because the inquiry is in camera, a report for public distribution can be made available only once the inquiry process has been concluded, and with the consent of the Master.
In addition, recent court rulings have granted the trustees increased legal power, moving them a step closer to recouping money allegedly invested in the scheme.
Read: Court orders to assist in asset seizure and unravelling of BHI Trust
This includes the final sequestration of Warriner (29 February) and the final liquidation of Amalgum Investments 108 (Pty) Ltd (6 March).
Warriner was also the director of Amalgum Investments.
A provisional court order for the liquidation of BHI Holdings (Pty) Ltd was granted on November 14 last year. The cause of action was for more than R58m due to the BHI Trust by BHI Holdings (Pty) Ltd over about five years.
The return date for the final BHI Holdings’ liquidation has been set for later this month.
In a further bid to recover funds, the trustees are investigating creditors who received payments from the trust from 25 April 2023 to date.
According to the latest circular, the trustees can now start sending demand letters to these creditors.
The trustees say the initial indication is that these creditors received more than R300m in preference over other creditors.
FSPs under the spotlight
Shortly after the financial scandal broke, the FSCA confirmed it was investigating the activities of the trust and the possibility that it was conducting unauthorised financial services business and unauthorised collective investment scheme business.
Read: ‘Due care and diligence’ at the centre of BHI Trust probe – FSCA
The Authority also indicated that its investigation would include regulated entities that may have promoted the products of BHI Trust. The FSCA stated it was in the process of compiling a complete list of authorised FSPs who may have advised or assisted their clients to invest in BHI Trust products.
Read: FSCA asks BHI Trust investors to come forward with information on FSPs
An FSP whose name has been frequently linked in the media to BHI Trust is that of Global & Local Investment Advisors. According to Citywire, scores of BHI investors have come forward, stating that Global & Local actively marketed BHI Trust to its clients. A search of the FSCA’s website confirms that the Global & Local’s licence has been suspended as of 20 March.
According to the latest circular, a search and seizure – on application by the trustees – was executed at the premises of Global & Local.
“The documentation/information seized is currently a point of discussion between the legal team of the trustees and the legal team of Global & Local,” the circular states.
In the meantime, Warriner remains incarcerated. The 60-year-old has been in jail since surrendering himself last year. Initially, he chose not to seek bail, but later, during a court appearance on December 13, he applied for it, only to have the request denied.
It now seems he is considering negotiating a plea deal with the State. News24 reported that during his latest court appearance in April, the prosecutor stated that Warriner would file an application under section 105 of the Criminal Procedure Act at his next hearing in May.
This section allows an accused person to reach a plea and sentence agreement with the State.
“Keep investing money”? That door has been closed by the sequestration. The big issue now is the proving of claims at the courts. The trustees have stated that there is a “danger of contribution” which at the moment appears to mean that claimants will be required to contribute to the costs of the liquidation. If a claim has a non-contribution clause – inserted by the claimant – then, apparently, no contributions will be called for from such claimant. But, such annotated claims will also not be proved at the next creditors meeting (court appearance) and again, apparently, such claims will be excluded from any eventual distribution out of monies recovered in the liquidator’s investigation. Further though, the investors are also facing calls via Letters of Demand for repayment of any funds withdrawn from their BHI accounts from 25 April ’24 to date of sequestration. In the Trustees Fourth Circular in the insolventbhi.com web site it has been stated that Letters of Demand are being prepared. So, for claimants/investors, “a tough call to make in the next two weeks: should they keep investing money in a sunken vessel ?” Hardly likely but impossible anyway!