Advocacy comment: Why amaBhungane is challenging liquidation inquiry secrecy

The notion that business activities are wholly private is anachronistic. 

Society and the law have moved on from that idea, recognising that the activities of corporate entities have a direct impact on stakeholders including employees, customers and suppliers.

These effects can also ripple into the wider public realm, affecting even those who are wholly unaffiliated to the company – think, for instance, the far-reaching effects of the Enron scandal, or for home-grown examples, VBS and Steinhoff. 

Many ordinary South Africans lost value in their pension funds after years of diligent saving. Public funds were misappropriated, meaning less for municipalities to deliver on public goods and services.

When companies go rogue, where does accountability lie? Private companies have the benefit of limited liability, meaning that shareholders can shield themselves from risk should the company fail. They may lose their investment in the company, but creditors cannot come after them personally. 

Directors are exposed to liability in terms of the Companies Act, but they are only duty-bound to act in the “best interests of the company”. They do not have a similar responsibility to people who may be affected in the world at large.

Only in limited instances, such as certain specified offences, can directors be called to account for the impact that is felt by those outside the company itself.

In short, the public has little to no recourse against companies whose activities have the potential to cause harm. In these circumstances, increased transparency enables scrutiny of a company’s affairs, which can help to expose corporate wrongdoing or even prevent it.

What companies do matters, including how (and why) they fail. 

And, when they fail, it matters that proper processes are followed so that the outcomes of winding-up procedures are just and mismanagement or fraud is exposed.

It is for this reason that amaBhungane has approached the high court, on an urgent basis, to request access to the witness examination – a so-called “section 417 inquiry” – in the liquidation of Paramount Combat Systems (PCS), an armoured vehicle manufacturer.

Witness examinations

Witness examinations are governed by sections 417 and 418 of the 1973 Companies Act. 

They are an extraordinary process in which a wide range of people – including officers, directors, or indeed anyone deemed “capable of giving information concerning the trade, dealings, affairs or property of the company” can be summoned to give evidence under oath as to what brought about the company’s collapse.

They can be an effective tool in the hands of liquidators, particularly as the act provides that witnesses may not refuse to answer questions even if they may incriminate themselves.

Section 417(7) provides that such examinations are confidential by default, unless the Master of the High Court, or the court itself, directs otherwise. This can be in general, or in respect of a particular person.

Access to these examinations has the potential to reveal important information that would otherwise be nearly impossible to find out. This is why we argue that, where this information concerns the interests of the public, it should not automatically be concealed under a blanket of secrecy.

The public interest in Paramount

PCS is but one entity within the Paramount group, a network of companies with global reach whose core business is the manufacture and supply of arms.

AmaBhungane and others have reported on the activities of the broader group over the years, including its supply of weapons to foreign countries.

In our court application, we note that the public has an interest in Paramount’s activities for a number of reasons.  These include its international footprint, including in “low scrutiny” jurisdictions and with countries that are at war or implicated in gross human rights violations. 

Examples include a “collaboration agreement” in Saudi Arabia, a key protagonist in the devastating war in Yemen where it is alleged that indiscriminate bombing campaigns have killed thousands of civilians.

There is concern that by operating in low scrutiny jurisdictions, the Paramount group might have placed itself outside of the oversight structures in South Africa that restrict military trade. 

In addition, questions have been raised about the alleged funding of political interests ranging from South Africa’s ruling party to politicians abroad, and whether political connections have enabled the expansion of the company outside South Africa.

The manner in which PCS has failed is also a matter of public interest. 

If it was mismanaged, this could mean that South Africa would have needlessly suffered losses of its domestic hi-tech industrial capacity and the potential loss or export of South African intellectual property built up over many years.

More than that, the public has an interest that the liquidation process itself is conducted properly, with due adherence to procedure and free from manipulation. 

Our courts are subject to the principle of open justice, which is the idea that proceedings must be accessible to the public as a check against unfairness.

Finding the right balance

amaBhungane does not argue that there should be unrestricted access to such witness examinations.

Rather, our argument is that the door on these proceedings be cracked open somewhat. The public interest should be taken into serious consideration when the master or the court exercises the discretion to decide whether or not to grant access.

This enables the public to not only be informed of relevant content, but also to have confidence in the integrity of the proceedings themselves.

Companies wield immense power, and there are few tools that outsiders can use to counterbalance that influence. Transparency is one such tool.

The Companies Act provides that secrecy is the default position. It need not be an immovable one. DM

* Thakur is advocacy coordinator at the amaBhungane Centre for Investigative Journalism.

 The amaBhungane Centre for Investigative Journalism, an independent non-profit, produced this story. Like it?  Be an amaB Supporter to help us do more. Sign up for our newsletter to get more.