Picture: ISTOCK
Picture: ISTOCK

The case that is expected to set a precedent on whether shareholders can sue directors and auditors of companies under the new Companies Act is now headed for the Supreme Court of Appeal.

On Friday, Judge Letty Molopa-Sethosa of the  Johannesburg High Court granted African Bank Investments (ABIL) BEE shareholders — Hlumisa Investment Holdings and Eyomhlaba Investment Holdings — leave to appeal her earlier judgment in the Supreme Court of Appeal.

The shareholders want to hold former African Bank directors and the bank’s external auditor at the time of the collapse, Deloitte, jointly and severally liable for the loss of value in their shares when the bank collapsed. African Bank was a subsidiary of ABIL.

Hlumisa, which held 25-million African Bank shares, is demanding R721m from both parties, while Eyomhlaba is demanding R1.3bn for the 48-million shares the entity held.

The lawsuit was initiated in 2015, following the collapse of African Bank. In August 2018, Molopa-Sethosa upheld the defence of African Bank directors’ and Deloitte’s on the two claims.

 However, granting the leave to appeal on Friday, Molopa-Sethosa said the shareholders’ legal team demonstrated an “adequate case” that another court may come to a different decision than hers. She also gave Deloitte leave to cross-appeal, which means Deloitte will also appeal some parts of Molopa-Sethosa’s judgment in the Supreme Court.

Through their attorney, the BEE shareholders argued that by pursuing aggressive accounting practices and authorising the publication of misleading financial statements, among other things, the ex-directors of African Bank and ABIL were in breach of the Companies Act and were thus liable for shareholders’ losses.  They also charged that Deloitte made “false” statements when expressing an audit opinion in the 2012 and 2013 financial statements.

Deloitte defended the allegations on the basis that African Bank and not ABIL or its minority shareholders, were the “proper plaintiff” in the matter.  The auditing firm argued that ABIL shareholders had no claim against a third party which caused any loss to African Bank and that auditors only had a legal duty to the company itself.

On Friday, Deloitte’s attorneys, Webber Wentzel said they were cross-appealing on the grounds that the BEE shareholders’ legal team did not present a case against the auditing firm but only an argument from which a case against Deloitte can be inferred. The firm further argued the alleged failure by Deloitte to perform its duties was a breach of its contract with African Bank, and not ABIL shareholders.

Lawyers representing ex-ABIL directors, Clyde & Co, said they were not surprised that the matter was referred to the Supreme Court of Appeal, given its importance and public interest.

“We expected that it might go to the Supreme Court of Appeal and we are quite happy for it to go there because that will provide certainty on the issue of whether shareholders in their individual capacity can sue directors of a company for breach of fiduciary duty. We remain optimistic that the court will find in our clients’ favour,” said Clyde & Co.

The law firm had opposed the leave to appeal on the basis that the reflective loss claimed by the shareholders was not something that can be claimed in South African law. They also rejected the argument that the matter was in the public’s interest and of national importance.

buthelezil@businesslive.co.za