Supreme Court clears multibillion-rand tyre recycling project Redisa of corruption charges
SA’s multibillion-rand tyre recycling project, marred by allegations of widespread corruption, has been given a clean bill of health by the Supreme Court of Appeal.
The court has overturned final liquidation orders of the Recycling and Economic Development Initiative of SA (Redisa), granted in 2017 at the behest of then environmental affairs minister Edna Molewa. However, the judgment was not without dissension.
While the majority of the judges said the minister was not justified in approaching the courts because there was no proof of any wrongdoing by the directors of Redisa and its managing partner Kusaga Taka Consulting (KT), one judge completely disagreed.
Judge Mahube Molemela, questioned how her fellow judges — Azhar Cachali, Halima Saldulker, Christiaan van der Merwe and Owen Rogers — had found no issue with the fact that one of the directors was earning more than R4m a year.
When the minister launched the liquidation proceedings against the two companies — both liquid at the time —it was said Redisa had collected about R2bn from the tyre industry from the environmental levy of R2.30 (plus VAT) on all tyres since 2012.
Its job was to create a national network for collecting, storing and delivering used tyres to recyclers and, as per the deal, KT was appointed as the management company.
In November 2017, three weeks after the minister praised the project publicly as “an important case study on how to turn waste into worth”, she went to court and got ex-parte urgent provisional liquidation orders against both companies. They were finally wound up in September that year.
Redisa and KT cried foul. In their appeal, their directors said they had done no wrong, and the minister had failed to disclose all the facts, including “a series of attempts” to terminate the Redisa plan which was still being challenged in three matters pending before the high court.
The minister alleged that Redisa directors had not disclosed their “indirect” shareholding in KT and said they were using this as their vehicle to “unlawfully channel funds for their personal benefit”.
But the directors said — and the majority judgment found — that they had declared their interests in KT and that KT’s management fee was 18% of the total levy, less than the 20% allowed by the plan.
The depletion of the company’s reserves was due to the fact that the minister had proposed a new funding plan for the project and from February 2017, Redisa had no source of funding.
The judges said the minister did not have “sufficient” concerns to act urgently and her “skewed disclosures” and non-disclosures were extensive. She was “wrong” to allege an alarming and sinister dissipation of cash.
The directors had explained all the “red flags” such as relocation and security spending. KT had received R432m in fees between 2014 and 2017 and had paid its shareholders R84m in dividends — 3.5 % of the tyre levies.
“Redisa directors' remuneration was set by an independent committee. They were not excessively remunerated,” the judges said.
But Molemela said she would have dismissed the appeal with costs and disagreed with every point taken by her colleagues on the bench.
The directors, she said, were ineligible to be appointed because of a “linked series of relationships and directorships in other companies involved in the tyre waste stream”. One, she said, was also a director of a nonprofit company which received R61m from a Redisa holding company.
“There was an untenable conflict of interest. They flouted various principles of corporate governance. Three of the directors controlled KT and this was never disclosed.”
Molemela said while the directors claimed their pay was benchmarked by the PwC, some were paid exorbitant sign-on fees in excess of R1m.
“The CEO salary worked out to more than R4m per annum with additional perks, such as R548,000 rental for his home … I just cannot agree that the remuneration was not excessive,” she said.
Ministerial spokesperson Prince Mlimandlela Ndamase told Business Day that the judgment was still being studied. Redisa’s lawyers did not respond to a request for comment.