The High Court in Johannesburg has dismissed an urgent application by Khalid Abdulla (pictured), the executive deputy chairman of AYO Technology Solutions Limited, to prevent the Johannesburg Stock Exchange from publishing a censure of Abdulla, which includes disclosing that it fined him R2 million.
The public censure and the fine were a result of the JSE’s finding that Abdulla breached the exchange’s Listings Requirements in respect of his role in:
- related-party transactions between AYO and asset manager 3 Laws Capital (Pty) Ltd, and
- instructions that adjustments be made to line items in AYO’s unaudited 2018 interim results.
In August 2020, the JSE censured AYO and imposed a fine of R6.5m after finding, among other things, that its unaudited 2018 and 2019 interim results did not comply with the International Financial Reporting Standards (IFRS) and had to be restated because they contained numerous adjustments and material errors.
The decision to censure and fine Abdulla follows the JSE’s investigation into certain individuals who presided over AYO at the time of the above transgressions of the Listings Requirements.
In March, Abdulla applied to the Financial Services Tribunal (FST) for the reconsideration of the JSE’s decision. He also applied to the FST for an order suspending the JSE’s decision, pending the outcome of the reconsideration application.
In April, Judge Louis Harms, the deputy chairperson of the FST, suspended the R2m fine but dismissed the application for the suspension of the public censure.
Abdulla launched an urgent application against the JSE in the High Court, in which he sought to review and set aside the Judge Harms’s decision not to suspend publication of the censure and an interdict to prevent the JSE from publishing the FST’s ruling.
The JSE opposed the application and undertook not to impose its public censure and not to publish the ruling pending the outcome of the application.
In a judgment handed down on Tuesday, Judge Stuart Wilson dismissed Abdulla’s application, with costs, including the costs of two counsel.
“The Tribunal found, in essence, that Mr Abdulla had raised no real dispute about the fact that he had conducted himself in breach of the Listings Requirements in the respects the JSE alleged, and that he had otherwise advanced what the Tribunal regarded as meritless procedural criticisms of the way the JSE conducted its investigation. Given the nature of the transgressions, the Tribunal would have had no reason to think that the relatively light penalty of a public censure would be found inappropriate,” Judge Wilson said.
The JSE’s decision in respect of the public censure imposed on Abdulla is therefore enforceable.
The FST is scheduled to hear Abdulla’s reconsideration application on 15 September.
In SENS announcement published on Wednesday, AYO said it “recognises the important role and function that the JSE plays in regulating the market, and the need for compliance with the JSE Listings Requirements. Further, the accuracy and reliability of financial information published by companies are of critical importance in ensuring a fair, efficient, and transparent market.” The provisions of the Listings Requirements contribute to the integrity of the market and promote investor confidence.
AYO said it also recognises the need for the legal process to follow its course. Accordingly, AYO would await the outcome of Abdulla’s reconsideration application before issuing a detailed statement.
3 Laws transactions
The JSE published the censure on SENS on Tuesday. The censure sets out the exchange’s findings against Abdulla, as follows:
AYO listed on the JSE on 21 December 2017. At the time, Sekunjalo Investment Holdings (Pty) Ltd held 85% of 3 Laws. Sekunjalo held 61% of African Equity Empowerment Investment Holdings Limited (AEEI), which held 49% of AYO. Therefore, 3 Laws was a related party to AYO in terms of the Listings Requirements.
The day after AYO listed, it entered the first of three performance management agreements (PMAs) with 3 Laws, in terms of which 3 Laws would manage funds invested for and on behalf of AYO to diversify AYO’s treasury risk function.
The three transactions were:
- In terms of a verbal agreement between the parties, AYO advanced R70m to 3 Laws on 22 December 2017. The money was returned to AYO on 22 February 2019 (PMA1).
- AYO advanced R400m to 3 Laws on 5 March 2018. The money was returned to AYO on 20 August 2018 (PMA2). This transaction was in terms of a written agreement on 28 February 2018 and a resolution by AYO’s board of directors.
- AYO advanced R400m to 3 Laws on 29 November 2018. The funds were returned on 22 February 2019 (PMA3). This transaction was in terms of a written agreement on 27 November 2018 and a resolution by AYO’s board.
According to the JSE, the salient terms of the PMAs highlighted the following:
- No funds may be transferred to 3 Laws or to any account in the name of 3 Laws in carrying out its duties in terms of the agreements.
- The funds must be placed in an AYO custodian account/bank account with Nedbank for the benefit of AYO.
- 3 Laws was entitled to earn only a market-related
- Any investment made on behalf of AYO must be within the terms of the investment mandate set out in the PMAs.
- Any investment instruction given by 3 Laws must be made in the name of AYO, and the value of the investment be recognised and recorded as part of AYO’s assets in the financial statements.
Related-party transactions
The Judicial Commission of Inquiry into Allegations of Impropriety at the Public Investment Corporation published its report in March 2020. The report included an analysis of 3 Laws’ Nedbank current account, indicating the movement of money between AYO, Sekunjalo Capital (Pty) Ltd, and 3 Laws.
The JSE said that, based on the report and after “robust investigation and engagement with AYO”, it discovered that the funds were not invested by AYO with 3 Laws in accordance with the PMAs, and the transfer of funds to 3 Laws therefore constituted related-party transactions in terms of the Listings Requirements.
According to the JSE, this was evident from the following:
- All funds were transferred by AYO directly into 3 Laws’ proprietary and current bank account held with Nedbank and Standard Bank and not paid into a separate and/or segregated banking account in the name of AYO, in conflict with the express provisions of the PMAs.
- AYO did not transfer R70m to 3 Laws in terms of PMA1. An amount of R35m was transferred directly into 3 Laws’ bank account, and a further R35m was transferred directly into the bank account of Sekunjalo Capital on 3 Laws’
- AYO’s bank records reflect that on 31 August 2018, R400m previously transferred to 3 laws in terms of PMA2 was returned to AYO’s bank account and referenced as “3 Laws Capital”. It was not returned to AYO by 3 Laws but by a different entity.
- 3 Laws returned R470m to AYO on 22 February 2019 in terms of PMA1 and PMA3 in two separate payments. On the same day, 3 Laws received payments of R35m from Africa News Agency (ANA) and R30m from SGB Securities. The total of R470m returned by 3 Laws to AYO included the money received from ANA and SGB Securities on the same day, further confirming there was no segregation of funds or accounts for purposes of AYO’s investment. This was also a direct result of AYO paying the funds directly into 3 Laws’ bank account.
Abdulla, in his capacity as a non-executive director of AYO at the time, facilitated the transactions with 3 Laws and negotiated with 3 Laws for the payments to be made directly into 3 Laws’ bank account, contrary to the provisions of PMA1 and PMA2, the JSE said.
“AYO did not, prior to completing and/or implementing the transactions with 3 Laws, inform the JSE and the market through SENS of the details of the transactions, obtain the approval of shareholders where required, or confirm to shareholders that the terms of the transactions were fair, as required,” the exchange said.
Abdulla, through his role in these transactions, caused and/or contributed to AYO’s breach of the Listings Requirements regarding related-party transactions, the JSE said.
AYO’s 2018 interim financial statements
In April 2018, AYO’s former chief financial officer emailed a copy of AYO’s draft unaudited 2018 interim results to Abdulla and Abdul Salie, the chief investment officer of AEEI, before the CFO went on leave.
According to the JSE, Abdulla instructed Salie, an executive director of AEEI (a parent company of AYO), to adjust specific line items of the results.
The adjustments “were improper and not in accordance with the requirements of IFRS, culminating in AYO’s misstated financial information”.
Furthermore, the exchange said, Abdulla was one of the AYO board members who approved the unaudited 2018 interim results that contained the improper adjustments for dissemination to shareholders and the market.
Abdulla’s role in instructing the adjustments to the specific line items in AYO’s unaudited 2018 interim results caused and/or contributed to AYO’s breaching IFRS and the Listings Requirements, the JSE said.
