Funeral intermediary in provisional liquidation over unpaid premiums

The High Court in Johannesburg has placed Prosper Funeral Solutions (Pty) Ltd under provisional liquidation after finding that African Unity Life (AUL) has a valid claim for R10 million in unpaid premiums.

The judgment was handed down on 14 January, and the return date for the final winding-up order is 28 February.

AUL entered an intermediary agreement with Prosper in March 2020 in terms of which Prosper would collect monthly premiums on behalf of AUL.

About 115 000 members of group schemes were underwritten during the full underwriting term.

According to AUL, Prosper breached the agreement, which resulted in the parties signing another agreement in May 2021. In terms of this agreement, Prosper acknowledged it owed AUL R10m in outstanding premiums. It undertook to pay R4m within 90 days of signing the agreement and the balance in minimum instalments of R250 000 a month, from June 2021.

Judge PA Ternent said Prosper has not paid a single instalment.

“The indebtedness has not been disputed and, in fact, has been admitted. Instead, the respondent [Prosper] seeks to take the court down various rabbit holes to prior agreements which do not assist and explain the May 2021 agreement and the admitted indebtedness, which agreements predate the acknowledged indebtedness,” he said.

He rejected Prosper’s submission that the debt was bona fide disputed on reasonable grounds. Counsel for Prosper further argued that the liquidation application was an abuse of the court process, but the judge did not accept this.

He said it was also of “grave concern” that Prosper, in breach of the agreement, “swept or cleared the bank account into which the policyholders paid their monthly premiums. The applicant [AUL] avers this was a regular event at erratic and bizarre times, being late at night or during the early hours of the morning and outside the normal working hours of the applicant when it would attend to its bank account.”

Financial solvency ‘in doubt’

Judge Ternent said he was of the view that Prosper’s financial statements “do little” to establish that it is financially solvent. “This is a matter that requires further investigation.”

He said the financial statements for the year to 28 February 2021 did not include a portion of the R10m debt incurred from March 2020 to 1 May 2021.

“The submission made by respondent’s counsel was that this is because the debt is in dispute. Given that the respondent has admitted indebtedness, it is implausible it can contend it is in dispute, and I have already found that it is not bona fide in this averment. It begs the question then why this substantial debt is not disclosed. Yet the directors sign the financial statements and state that ‘they are not aware of any material change that may adversely impact the company’,” Judge Ternent said.

He said Walter Fisher, Prosper’s financial manager, submitted that the company’s total assets in February 2021 were R20.9m, of which R19.05m was as an ostensible asset listed as goodwill on purchase of the business.

“This is clearly not a liquid asset. As such, only R1.4m could potentially be liquid assets,” the judge said.

“Furthermore, the respondent’s total liabilities amount to R18.5m, of which R14.6m is an alleged loan to Fisher, who is not a director of the respondent, nor does he hold any equity in the respondent. Of concern is that an amount of R4.4m was paid over to Fisher over this period, reducing his loan to the respondent, and yet the indebtedness to the applicant is not mentioned. The inference is that Fisher is being unduly preferred above other creditors, like the applicant. If the admitted indebtedness was included in the balance sheet, it would be closer to R38.5m and paints a very different picture of the financial position of the company.”

Judge Ternent said Prosper owed a total of R1 121 890 to the South African Revenue Service for the 2020 and 2021 financial years.

Prosper’s response to the judgment

In a statement, Prosper said it was in consultation with its legal representatives to consider the reasons set out in the judgment and the legal remedies available.

“The indebtedness remains disputed, and we will continue in our opposition subject to appeal proceedings in the event of a final order being granted on the return date,” Prosper said.

“PFS’s financial standing is adversely portrayed whilst there is a clear factual dispute which must be ventilated through extensive discovery proceedings. Various factors have contributed to the dispute which PFS is of the opinion have not received the required consideration specifically as it relates to the indemnification of policyholders during the Covid pandemic and actions by PFS to mitigate the impact thereof.

“African Unity Life Ltd has engaged in the amendment of agreements with intermediaries and administrators, including PFS, during the Covid pandemic which substantially varied the basis of existing agreements and impacted both the entities and policyholders. We stand firm that consideration must be given to these negotiations, the application thereof and the resulting variations in the contractual obligations of the parties.

“At present, the matter remains sub-judice; however, PFS remains committed to its industry partners,” the statement said.

FSCA investigation?

AUL told Moonstone that a case of fraud and theft has been reported to the Hawks. It also said it had reported the non-payment of the premiums to the FSCA.

Moonstone has asked the FSCA whether it is investigating the matter. As of publication, the FSCA had not responded.

Click here to download the judgment.