Monday, September 20, 2021

Bluthorn challenges NBFIRA’s powers to liquidate them

Bluthorn Fund Managers (BFM) seeks to challenge the Non-Bank Financial Institutions Regulatory Authority (NBFIRA)’s powers to place them under liquidation.

The company filed an urgent application with the High Court this week seeking a stay of liquidation.

The application has been filed pending their appeal of an earlier High Court order granting NBFIRA leave to pursue their petition to liquidate the fund management company over the P211 million allegedly fleeced from investors. 

Following an application by NBFIRA the High Court earlier this year (February, 2021) ordered that BFM be placed under liquidation. The Master of the High Court was directed, subject to the provisions of section 381, 382 and 445 of the Companies Act respectively, to appoint Chris Bray as the Provisional Liquidator and hold office until the appointment of a substantive liquidator who was to be appointed at the first meeting of the company’s creditors.

In his founding affidavit, Eune Engelbrecht (who owns the majority of shares (60%) in BFM through his company Bluthorn Holdings) calls for a stay of liquidation proceedings pending the hearing and determination of an appeal filed with the Court of Appeal on May 20, 2021.

He argues that when granting the order for liquidation in February this year the High Court failed to take into consideration that BFM is an Investment Company with Variable Capital in terms of the Collective Investment Undertakings Act.

Engelbrecht says had the Court had that in mind, it would have not held that provisions of the Securities Act apply to BFM and therefore recognizing NBFIRA as having the authority to apply for BFM’s liquidation in terms of the provisions of the Securities Act.

“Most significantly though, the Court a quo (High Court) misdirected itself to the extent that it found that the 1st Respondent (NBFIRA) had the requisite locus standi (rightto move a petition for the winding up of the Applicant (BFM). ”The company says this argument is premised on the fact that the Collective Investment Undertakings Act does not permit or make provision for the winding up of a Collective Investment Undertaking.

“In fact, even the Act establishing the Respondent (NBFIRA) does not clothe it with such power,” BFM’s Engelbrecht argues, adding “I have been advised by the Applicant (BFM)’s attorneys of record that the 1st Respondent (NBFIRA) had those powers under the repealed Act1 and not the current one, which clearly shows an intention of the Legislature not to have the Respondent move such petitions unless otherwise expressly stated by any other law such as the Securities Act and others.” 

BFM also argues that while Collective Investment Undertakings Act of 1996 made provision for the winding up of a collective investment undertaking, the provision was later removed when that Act was replaced by the Collective Investment Undertakings Act of 1999. Consequently, the company says, the current Act as it stands does not make provision for its winding up by NBFIRA. 

“Therefore, in absence of being granted by its Act and the Collective Investments Undertakings Act, the Companies Act is the right Act to look to for provisions of winding up a company. A close look at the Companies Act reveals, so goes the advice of our attorneys of record, that the 1st Respondent is not one of the parties that may bring a petition for the winding up of the company.”

Engelbrecht also argues the High Court misdirected itself when it granted leave to NBFIRA in terms of section 472 of the Companies Act for it to pursue the Petition for liquidation. “This point is premised on the fact that the said section as read with section 471 relates to judicial management. It simply makes provision for the granting of an order for judicial management as an alternative for liquidation in circumstances expressed therein.”

Bluthorn creditors were expected to file a notice of opposition in relation to the urgent application. Botswana Sectors of Educators Trade Union (BOSETU) who invested P21 million in BFM, were expected to file their notice of opposition through their lawyer Kabo Motswagole this past week.

The trade union was instrumental in rejecting the choice of Nigel Dixon as the substantive liquidator recently following recommendation by Provisional Liquidator Chris Bray.

The Creditors are expected to meet for the second time in the near future to appoint a substantive liquidator among other decisions. It is partly this appointment of liquidator that BFM seeks to block in their quest to end the liquidation process.

Engelbrecht says the recent decision by the Master of the High Court to adjourn the Creditor’s meeting and resolve to appoint a new Provisional Liquidator in due course to remain as such until a substantive Liquidator is appointed clearly shows that the Master intends to carry on with the liquidation process despite the “adverse” effects it may have on BFM should their appeal succeed.

“That then leads me to the question of substantial redress in due course,” he said when making a case for the urgency. “Essentially the application for stay, by its very nature, cannot in the circumstances be heard and determined at a hearing in due course for the simple reason that it would have been overtaken by events. Perhaps, more aptly, the Applicant (BFM) cannot afford to fiddle whilst Rome burns. For this reason, upon being aware of the 2nd Respondent (Master)’s intention to proceed nonetheless with liquidation, the Applicant swiftly sought legal redress.” 

Engelbrecht argues that should the Master proceed with the liquidation proceedings and their (BFM) appeal succeeds then the company would suffer irreparable harm as winding up of its affairs would be at a prejudicially advanced stage or already wound up. 

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