Bluthorn Fund Managers (Pty) Ltd provisional liquidator, Christopher John Bray has recommended piercing the company’s corporate veil so that its directors and shareholders can frisked to recover the P200 million the limited liability company fleeced from investors.
Piercing the corporate veil is the legal jargon used to describe an action pursued against a company that ultimately leads to personal liability of the owners and shareholders. This personal liability opens owners and shareholders bank accounts, real and personal property interests, and investments to possible seizure.
Bray states in his report that, “In my view, piercing through the company and its related structures, the whole set up was a fraudulent scheme. Therefore, there is need for the piercing of the corporate veil if meaningful recovery is to be made.”
It is blackletter law that owners are legally distinct from the company itself and that the corporate veil protects them from being personally responsible for the company’s liabilities; that is until the owner acts inappropriately and misuses the company.
This will probably be the first time in Botswana’s history that a company’s corporate veil is pierced to hold shareholders personally liable.
The liquidator has released a scathing report suggesting that Bluthorn shareholders acted inappropriately, misusing the company to shake down investors of more than P200 million.
The report echoes sentiments by the statutory manager, even going one step further to label the company a “pure Ponzi scheme fraud”.
It emerges from the report that the millions collected from investors, mostly local government authorities were fed into corporate webs linked to Bluthorn Fund Managers (Pty) Ltd. In what was a common business arrangement, the money invested with Bluthorn Fund Managers was re-invested by the company shareholders in companies they have a financial interest or that they control. Most of the P200 million went into such dealings, known as related party transactions.
Statutory manager Peter Collins described the situation as akin to brothers and sisters sitting at a family lunch table and passing money between themselves.
Despite having collected over P211 million (P211, 382,549) in investors’ money the company has no tangible assets that can be sold to recover part of the lost millions.
The only assets remaining are in the form of the cumulative P46 million (P46, 633,000) in the hands of the debtors the recovery of which the provisional liquidator calls impractical.
So bad is the financial situation of Bluthorn Fund Managers (Pty) Ltd that assets recovered may not even be enough to cover the liquidator’s and legal fees. If both reports are anything to by, the company was a fraud from the onset and the directors may never have harbored any intentions to make good on their agreements with investors.
The Bray’s report says the extent of the deficit between the assets and liabilities calls for further investigations into the cause of the discrepancy.
“Until all related parties are able to payback or placed under liquidation, there is no hope for reasonable recovery by the investors,” the report says.
“Based on the current figures of assets and liabilities used in this report, assuming all debtors are collected (practically impossible), the dividend payable to creditors would be around 20%. However as mentioned that this appears to be a pure Ponzi scheme fraud, the likely dividend may be zero and any assets recovered may not even cover the liquidators and legal fees involved.”
The report states that the liquidation process will take longer than was anticipated because collections have to be made from the debtors.
“It appears that for each debtor we will need to call on the loan then liquidate that company, and such liquidator will then likely find it has no assets other than loans to other related companies; in such cascading fashion the money has been fraudulently stolen and will now be offshore and unrecoverable.”
The liquidator says successful recovery will entail tracing the funds to the ultimate beneficiary in the set up and which on its own is time consuming and will delay the process.
“It is therefore difficult to estimate the time of completion of the liquidation.” Interestingly, the debtors who owe money to Bluthorn Fund Managers (Pty) Ltd are either owned by the company’s directors themselves or individuals connected to the directors.
The provisional liquidator report advises that the only feasible way to recover some of the funds from these debtors is by liquidating such companies as well.
“The fact that by now these companies have not repaid loans that were advanced to them indicates that the chances of them doing so are slim so the only effective way of recovering from them is through liquidating them.” Some of the debtors closed shop following the 2020 decision by the regulator Non-Bank Financial Institutions Regulatory Authority (NBFIRA) to place the company under statutory management, because they depended on the same company, they owed money (Bluthorn Fund Managers) for administrative costs.
Other companies had simply just vanished with the funds ‘invested’ in them.
In one instance it was found that a company, Prime Employee Benefits (Pty) Ltd, had replaced Escponent Projects (Pty) Ltd, a special investment vehicle for Bluthorn Fund Managers (Pty) Ltd and further that Ecsponent Projects (Pty) Ltd was no longer in existence.
Before closure of Ecsponent projects, Bluthorn Fund Managers (Pty) Ltd had allocated it the sum of over P14 million and upon enquiry by NBFIRA, Bluthorn Fund Managers (Pty) Ltd was unable to explain what happened to the funds upon closure of Ecsponent Projects.
There were also other payments to Bluthorn Holdings (Pty) Ltd for almost P20 million and Bluthorn Procurement Solution (Pty) Ltd for over P13 million which Bluthorn Fund Managers (Pty) Ltd could not account for.
These are some of the findings that weaken further, any chances of recovery. It is partially for this reason that the liquidator calls for the ‘corporate veil’ to be removed in order to hold Bluthorn Fund Managers (Pty) Ltd directors and shareholders personally liable for the loss of funds.
The report recommends looking beyond the company as a legal person. It calls for disregarding the corporate identity and paying regard to humans instead.
“In my view,” the provisional liquidator says, “piercing through the company and its related structures, the whole set up was a fraudulent scheme. Therefore, there is need for the piercing of the corporate veil if meaningful recovery is to be made.”
The report says the fact that the value of debtors is way lower than the loans advanced means there is reasonable probability that the funds could have ended in the pockets of the directors and shareholders.
“It therefore requires that the estates of the directors and shareholders should be placed under immediate sequestration to allow for proper investigations, and to not give them time to sell off their personalassets.”
Bray recommends that the directors and past directors be examined in court in order to unravel all the fraudulent transactions that were taking place in the company and other related entities.
On April 2nd 2020, NBFIRA appointed Peter Collins as the statutory manager for Bluthorn Fund Managers (Pty) Ltd. The decision by NBFIRA followed an inspection conducted at the company where many issues were raised relating to non-compliance with their license.
Some of the defrauded investors include district councils with investments ranging from P20 million to P140 million each. There were also individuals with investments between P500, 000 and P2 million each.
