VBS Bank heist claims two directors’ scalps in small win for justice

The North Gauteng High Court has declared two non-executive directors of VBS Bank, who were also former employees of the PIC, as delinquent directors.

The order was handed down on Tuesday, 20 August 2019. The PIC brought the application to have Ernest Nesane and Paul Magula, respectively the PIC’s former executive heads of legal counsel, governance and compliance; and risk management, declared delinquent.

This followed an investigation into the collapse of VBS Mutual Bank that directly implicated them in corrupt activities.

Both have also been debarred, at the request of the PIC, by the Financial Sector Conduct Authority in terms of section 14 of the Financial Advisory and Intermediary Services Act, 2002.

The court application is a clear indication that the interim board at the PIC is determined to show that directors are expected to take their fiduciary responsibilities seriously and unethical behaviour will have consequences.

A spotlight was shone on the conduct of VBS Bank executives after the SA Reserve Bank commissioned a forensic investigation into the bank in April 2018, nearly a month after it was placed under curatorship.

As a result, the PIC instituted a disciplinary inquiry against Magula in relation to the performance of his duties. He was dismissed for poor performance in 2018 after the hearing found him guilty of the charges against him.

Nesane resigned after testifying in front of advocate Terry Motau that he was effectively paid by VBS to see no evil and hear no evil.

As company directors and PIC executives, both Nesane and Magula were entrusted with a duty of care to ensure that the institution and its business practices applied the highest standards of ethics and good corporate governance.

In a similar case, Business Maverick columnist Xolisa Phillip reported on Monday that the North Gauteng High Court had declared CA Phumlani Zwane a delinquent director twice over. This was after the Companies and Intellectual Property Commission (CIPC) brought a case against him.

This story began in 2011 when Zwane, who was employed as CFO of the National Development Agency, was appointed to the board of the South African Nuclear Energy Corporation (Necsa) by the energy minister at the time. As a government employee, he was not permitted to draw director’s fees from Necsa, which would be viewed as a second income. As Philip points out, this did not stop him.

This is the second high-profile scalp the regulator has claimed in the name of the Companies Act of 2008, in as many years. It won its case against former South African Airways chair Dudu Myeni, with costs, Philip says.

Also, in July 2019 the South African Institute of Chartered Accountants (Saica) delayed its disciplinary process against former Transnet and Eskom chief financial officer Anoj Singh in the light of new allegations against him. In the interim, his membership of Saica has been suspended.

“This is akin to a life sentence for these individuals unless the court judgments are overturned,” says corporate governance practitioner Roger Stewart. This is because none can be appointed as directors of any South African company, whether publicly or privately owned — and Singh is not eligible to practice as a CA.

“If they were to apply to be reinstated some time in the near future, I doubt any judge would allow them back on a board; but strange things do happen.” BM