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FSRA KNOWS WHEREABOUTS OF ECSPONENT MILLIONS - LIKHWANE

12/09/2023 08:53:00 Kwanele Dlamini

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MBABANE – Likhwane Beneficiary Fund has alleged that the Financial Services Regulatory Authority (FSRA) is aware of the whereabouts of the millions of Emalangeni it invested in ESW/Ecsponent.

It also alleged that the FSRA failed to assist it to recover its investment in excess of E63 million from ESW. The Chief Executive Officer (CEO) of Likhwane, Peter Shongwe, said Likhwane requested the FSRA to intervene and assist it to recover the ESW investment. Instead of assisting and hearing Likhwane’s concerns, according to Shongwe, the FSRA allegedly failed to take any steps. “To exacerbate the matter, the FSRA instead approved ESW as an investment manager for the respondent (Likhwane) for a further period ending December 2023,” said Shongwe. This is contained in Likhwane’s answering papers in the matter in which the FSRA obtained an order for the provisional winding up of Likhwane, which was one of the investors in ESW, where individuals, companies and organisations lost a total investment of E340 million.

On August 16, 2023, the High Court granted the order for the funds’ provisional winding up under the supervision of the FSRA. Joseph Waring was appointed as provisional liquidator with powers set out in the FSRA Act, Companies Act and Insolvency Act. The order was to be published in the Times of Eswatini and Eswatini Observer and one publication in the Eswatini Government Gazette.

Urgency

It was granted after FSRA approached the court ex parte (without notifying Likhwane) and with urgency. Likhwane is opposed to the liquidation. Likhwane clients are almost exclusively the Boards of major corporate entities. In the event that the employees of such a company pass away, the Board provides Likhwane with the funds that are held in their pension or provident schemes, so that they may be managed appropriately. Likhwane invests the death benefits and uses the interest earned to provide for the basic needs of the minors. These include paying the children’s daily living expenses such as food, transport and school fees. This means that Likhwane assumes the financial responsibility that would ordinarily be borne by the minor’s parents or family members. They also pay tuition for university students and school fees for pupils who attend school.

The FSRA, according to Shongwe, alleged that Likhwane conducted itself in an unlawful manner and was insolvent, as a result must be placed under liquidation. Shongwe told the court that the allegations made by the FSRA were contrived. “The FSRA is fully aware of the whereabouts of the money invested by the respondent. It is fully aware of the difficulties which the respondents faced in having the investments returned. It is due to no fault on the part of the respondent, but rather as a direct result of the lack of action and support from the FSRA,” Shongwe submitted. “The FSRA failed to take steps to assist the respondent to recover the investments made with ESW in the sum in excess of E63 million. The inaction of the FSRA has left the respondent with no alternative but to pursue its own proceedings against ESW and has already launched legal proceedings against ESW and others under Case 1841/2023. As a direct result of the actions and inactions of the FSRA, the respondent’s financial position has been adversely affected,” Shongwe added.

The veracity of these allegations is still to be tested in court. Likhwane is represented by Mlungisi Khumalo of Khumalo Attorneys. Henwood and Company appear for the FSRA. Shongwe submitted that the FSRA was abusing the liquidation proceedings, ‘in circumstances where the FSRA itself failed to perform its obligations and to take steps to prevent the harm caused by the respondent through the investment with ESW’. The CEO told the court that Likhwane played open cards with the FSRA at all relevant times. He submitted that Likhwane and the FSRA had been in communication for most of the year. He said when the authority concluded its investigation, which was documented in a Desk Review Report, it (FSRA) issued a directive to Likhwane on July 25, 2023, to cease and desist new business and take remedial steps to recover its investments from ESW and Lingedla Investment, where it invested E10 million.

The directive, according to the CEO, stated that Likhwane should report to the FSRA on the steps taken on a monthly basis. The directive, submitted the CEO, was issued three weeks before the FSRA applied, ‘surreptitiously’, for the liquidation of Likhwane. He said there was nothing to suggest that Likhwane would not comply with the directive as it had already complied with it. Three weeks later, according to Shongwe, the FSRA allegedly displayed bad faith and ulterior purpose by having a change of heart and applying to the court with urgency for Likhwane’s liquidation. “The respondent (Likhwane) was taken by complete surprise by the provisional liquidation order, especially in light of the numerous correspondences exchanged between the parties over the last couple of months and in particular the July 25, directive issued to the respondent.

Liquidation

“The FSRA had failed to disclose the full set of correspondence over the relevant period on its affidavit and failed to explain the need for a liquidation application, notwithstanding the July 25, directive. “The FSRA cannot have a legitimate desire to liquidate the respondent and bring about a concursus creditorum. Instead, it is abusing the court procedures and the insolvency procedures to starve the respondent from proceeding with the intended action against the FRSA and ESW. The FSRA’s conduct is unlawful and harmful to the respondent,” Shongwe submitted. He argued that Likhwane would demonstrate that the FSRA had allegedly failed to make out a case for its liquidation. He said there was no basis to proceed with the liquidation of Likhwane on an ex parte basis. Shongwe further submitted that the FSRA allegedly approached the court with dirty hands.

The court, according to Shongwe, should discharge the liquidation order and Likhwane be allowed to pursue the relevant claims it had against the FSRA and ESW. He submitted that Likhwane had already taken steps to disinvest the E10 million from Lingedla. On another note, Shongwe alleged that the nominated liquidator was allegedly not independent. “He was the attorney who advised the respondent (Likhwane) on the structure of the fund and its business since inception. He was the drafter of the Deed of Trust. “Furthermore, being the person nominated by the FSRA, the respondent has no faith that the liquidator will take steps against the FSRA to protect the interest of the respondent and other stakeholders. The matter is pending in court.