Times Of Swaziland: FSRA’S BID TO LIQUIDATE LIKHWANE FAILS

FSRA’S BID TO LIQUIDATE LIKHWANE FAILS
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Kwanele Dlamini on 25/10/2023 10:04:00


MBABANE – Judge Bonginkhosi Magagula has dismissed the FSRA’s application to
liquidate Likhwane Beneficiary Fund.
The judge said it was reasonable that before the Financial Services Regulatory
Authority (FSRA) could decide to apply for the liquidation of Likhwane on the
strength of Section 73(2) of the FSRA Act of 2010, it must account on how it
fulfilled its objectives of supervising the safety and soundness of ESW
Investment, formerly Ecsponent Eswatini. The application was dismissed
yesterday. The court also discharged the order for the provisional liquidation
of Likhwane, which was issued on August 16, 2023. The judge further ordered the
FSRA to bear the costs of the application. Judge Magagula said this matter
pertained to an unfortunate and concerning state of events.  He said at the
heart of this litigation were orphaned minors, whose livelihood and
sustainability hung in the balance. The judge stated that the inaction or
ineptitude of the parties concerned in the matter led to unfortunate cash flow
challenges that Likhwane found itself in.
interest
The court, according to Judge Magagula, has a duty to uphold the best interest
of all minors at all times. The main function of Likhwane is to distribute funds
to its beneficiaries, mostly minors. The parents of the children were in their
lifetime the beneficiaries of the pension funds, which invested in Likhwane.
Likhwane invested E20.2 million, and later E42.7 million, in Ecsponent Limited
Eswatini, which later became known as ESW Investment Group.  Other entities and
individuals invested a total of about E340 million in Ecsponent, which went
under.
Likhwane, which was represented by Mlungisi Khumalo of Khumalo Attorneys, also
invested E10 million in a South African company called Lingedla (Pty) Ltd. On
August 16, 2023, FSRA approached the court on a certificate of urgency and
ex-parte for Likhwane to be provisionally wound up and Joseph Waring to be
appointed as the provisional liquidator, with such powers set out in the FSRA
Act, Companies Act and Insolvency Act. Likhwane opposed the application.
Seven pensions fund, represented by Sidumo Mdladla of SV Mdladla and Associates,
joined the proceedings as respondents with Likhwane. They are Eswatini Civil
Aviation Authority Provident Fund, Eswatini Electricity Company Pension Fund,
EswatiniBank Pension Fund and Eswatini Revenue Service Provident Fund. Others
are Eswatini National Provident Fund Staff Pension Fund, Umfuso Umbrella Fund
(Municipal Council of Mbabane) and Eswatini Sugar Association Staff Provident
Fund.  They also opposed the liquidation of Likhwane.
circumstances
Judge Magagula said the circumstances of the case, viewed in its totality, were
such that it was not in the best interest of Likhwane, the intervening pension
funds and mostly the beneficiaries of Likhwane (minors), that the provisional
liquidation order be confirmed. The judge also said FSRA was not in a position
to point an accusing finger to Likhwane when it had not accounted for the role
it played in discharging its supervisory powers to both Likhwane and ESW
Investment Group, the party that currently holds the investments, which had
ultimately affected the liquidity of the beneficiary fund. “It is common cause
that ESW, formerly Ecsponent, is a financial service provider, licensed by the
applicant (FSRA). It is also common cause that the first respondent (FSRA)
invested its funds in ESW. It is common cause that the second to eighth
respondents (intervening pension funds) are stakeholders in the industry. It is,
therefore, not unreasonable that before the applicant could decide to apply for
the liquidation of the first respondent on the strength of Section 73(2), it
must account on how it fulfilled its objectives of supervising the safety and
soundness of ESW Investment, also how it protected the first to eighth
respondents as stakeholders,” said Judge Magagula.
The judge mentioned in the judgment that during the arguments of the matter, the
court posed a specific and pointed question to Kenneth Simelane, who represented
FSRA,  on which three grounds did FSRA rely for the liquidation application.
Judge Magagula said Simelane’s answer was premised on that, as per Section 73
(2) (b)(i)and (ii) of the FSRA Act. Subsection 2 (b) allows three instances on
which FSRA can apply for the compulsory liquidation of an authorised financial
services provider. Part (b)(i) states that: ...is engaging on fraudulent or
questionable practices in the conduct of its business, which endangers its
reputation authority solvency and (ii) ...is conducting business in an unsafe or
unauthorised manner.
unlawfully
FSRA stated in its application that Likhwane, acting through its management
Board, acted unlawfully when it invested E10 million of its assets outside
Eswatini, which was above the five per cent threshold. Judge Magagula said the
court accepted that probably the investments may have been outside the five per
cent threshold. “However, to then say such is fraudulent is another issue.
Fraud is a different kettle of fish. It must involve certain specific acts of
criminal conduct by the officers of the first respondent. Such have not been
particularised in the founding affidavit. I, therefore, find that the averment
of unlawful does not support the basis for liquidation as may have been
anticipated in Section 73(2)(b)(i) of the FSRA Act,” said the judge.
The court stated that in so far as the urgency was concerned, even if the
investment of E10 million was fraudulent, ‘in order for such to justify the
urgency of approaching the court ex parte, it is key to probe the date on which
the applicant became aware of such unlawful conduct’. During the submissions,
the court was advised that Likhwane submitted quarterly reports to FSRA about
its affairs and investments. “Then the question that begs an answer is, when
did the applicant realise that the unlawful investment of E10 million has
occurred? What steps did it take immediately thereafter? If one considers the
audit report, findings were made in February 2022. Why then did the applicant
fall into slumber until August 16, 2023?” the judge wondered. According to the
court, FSRA did not state when it realised that Likhwane was no longer able to
pay its beneficiaries. The other glaring factor, according to the court, was how
the intervention of the liquidator and the appointment thereof, would alleviate
the anomaly.
default
Judge Magagula said it was common cause that Likhwane’s financial
circumstances had continued to worsen and it was in default of its present and
future obligation to beneficiaries. According to the judge, FSRA did not
disclose that Likhwane had filed a complaint against it before the Ombudsman of
Financial Services, which is pending. Judge Magagula said this was crucial. He
said the appointment of the liquidator may hamper the pursuance of the
complaint. “It is unlikely that the liquidator can pursue with vigour a matter
against the applicant, which recommended his appointment. The court is mindful
that the suggested liquidator is a professional and an officer of this court in
high standing. However, the conflict appears from the role that he may be
required to play in pursuing the applicant. It is a perceived conflict.” The
judge also said the master of the High Court should have been cited because
parents of the children who are beneficiaries were in their lifetime
beneficiaries of the pension funds. That narrative, according to the court,
unequivocally brings to the forefront the Office of the Master of the High
Court.