I feel that this ASX response is a deliberate attempt to misguide the ASX, ASIC and minorities- but the response to the two sections are going to be quite long that I will need to discuss my humble view points in two parts:
Part 1: GENORAH LOAN
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The response states--
"Subject to directors' fiduciary duties, there is nothing in the Bermuda Companies Act which would require the Company to obtain shareholder approval prior to entering into a transaction with a related party shareholder" --Perhaps the words "related party" is not defined in the Bermuda Companies Act (unlike the corporations Act 2001 in Australia where it is clearly defined) and the company is consciously trying to mislead the reader and ASX by selectively ommiting the fact that the the Bermuda Companies Act is explicitly clear regarding conditions governing loan to directors. The Genorah Loan was illegal in Bermuda and a blatant breach of Section 96 of Bermuda Companies act 1981:- because as per the section:
Section 96 (1) "Without the consent of any member or members holding in the aggregate not less than nine-tenths of the total voting rights of all the members having the right to vote at any meeting of the members it shall not be lawful for a company to make a loan to any person who is its director or a director of its holding company, or to enter into any guarantee or provide any security in connection with a loan made to such person as aforesaid by any other person:
Further to this subsection 4b clarifies the question whether the Genorah loan could indeed be considered to be a loan to directors:
Section 96 (4)
A loan shall be deemed to be a loan to a director if it is made to—(b) a company (other than a company which is a holding company or a subsidiary (wherever incorporated) of the company making the loan or, as the case may be, the company entering into guarantee or providing security in connection with a loan made to such person by any other person) which a director, his spouse or children own or control directly or indirectly more than twenty per cent of the capital or loan debt.
As many of us already know the share ownership of Genorah borad members who were also Nkwe directors at the time were as given below, which was well and truely above the 20% threshold--
M.W. Mphahlele; Mazwi Trust 1650 shares – 19.52%.
S.J. Pandor; Mr Sharif Joseph Pandor 1100 shares – 13.02%.
S.V. Sithole; Sunset Bay Trading 379 (Pty) Ltd – 1100 shares – 13.02%.
Nkhulu brothers: Total = 26.52%
Nsebenzo Supply Services CC 150 shares – 1.78%,
Mr Ayanda Nkuhlu – 500 shares – 5.92%,
Mr Andile Nkuhlu 500 shares– 5.92%,
Njeya Investments (Pty) Ltd 650 shares – 7.69%,
Qula Investments (Pty) Ltd 440 shares – 5.21%.
Trying to mislead the ASX to believe that Nkwe has not breached any law by categorically and wrongly claiming that Bermudan laws were not breached with regards to the loan is a criminal offence even if its legal team tried to be innovative by using subversive terms like "transaction with related party shareholder", without admitting that the said transaction was a loan that was made breaching the law--this is a misleading justification.
In the words of the ASX:-
"It should also be noted that an officer or employee of a listed entity who gives, or authorises or permits the giving of, materially false or misleading information to ASX under Listing Rule 3.1 (including in response to any enquiry ASX may make of the entity under that rule) may commit a criminal offence under section 1309 of the Corporations Act". Do not forget that as given in the
corporate governance disclosure of the company, Abraham Li is a signatory of declaration as per 295A of the corporations act and has responsibilities in adherence to relevant rules under the act.
The next section of the response states
"Similarly, there is nothing in the Company's Bye-laws which prevents the Company entering into a related party transaction or requires shareholder approval to enter into such a transaction". - Even this statement is only partially true because -- It does seem that Nkwe directors common to Genorah and Jin Jiang breached at least Article 3 and Article 7 of the
code of conduct bylaws of the company given on the company website which clearly states that:
Article 3 (f) A director should consider whether any benefit to be received by the director or associated persons is of sufficient magnitude that the approval of shareholders should be sought, even though not required by law
Article 7 (r) A director must not take improper advantage of the position as director to gain, directly or indirectly, a personal advantage or an advantage for any associated person.
So although the explicit words related party transaction are not used in the bylaw, the principle has been dealt with, and has been evdently breached here.
Then comes the next section in their reply "
Further, even if the Corporations Act 2001 applied to the Company (which it does not, other than Part 5B.2 which deals with registration and financial reporting), Genorah would not be regarded as a related party to the Company for the purposes of Chapter 2E (Related Party Transactions) just because it was a substantial shareholder of the Company at the relevant time."
The company is trying to dodge its responsibilites under the Corporations act by trying to say that it is not subject to the corporations act-- this agin is not true--To then go on and state that Genorah is not a related party is rubbish on a blatantly amazing scale --
Section 228 of the Corporations act 2001 clearly defines who is a related party- 228 (1) An entity that controls a public company (Genorah being the major shareholder at the time) is a related party of the public company. As per subsection (2) The directors are related parties and as per subsection (4) An entity (Genorah) controlled by a related party (Maredi, Sharif, Sithole, Nhkulu) referred to in subsection (1), (2) or (3) is a related party of the public company unless the entity is also controlled by the public company. So there is no escaping the fact that Genorah was on multiple levels a related party. Chapter 2E of the Corporations Act provides that for a public company or its controlled entities to give a financial benefit to a related party, either:
- shareholder approval must be obtained; or
- the giving of the financial benefit must fall within one of the exceptions listed in sections 210-216.(which do not apply to the interest free loan that was given to Genorah)
One of the key exceptions to obtaining member approval is the arm's length exception, whereby the financial benefit is given on terms that would be reasonable in circumstances where the parties are dealing at arm's length, or on terms that are less favourable to the related party.(Given that it was an interest free loan- it can be easily established that it was not an arms free transaction) The
ASIC has recently released a regulatory guidance on the matter (RG 76) and key points that are included in the guide are that:
Information on related party transaction is something that "
investors reasonably require in order to make informed decisions about whether to acquire a security or managed investment product. As a result, ASIC has updated its guidance in RG 76 on the content requirements for prospectuses, product disclosure statements, and other disclosure documents. The updated guidance provides that disclosure documents should describe:
- all related party arrangements (other than those that are ‘inconsequential’ or for which investors already have adequate information) including the value of the financial benefit if it can be quantified
- the nature of the relationship
- whether the arrangement is on arm’s length terms or some other Chapter 2E exception applies
- whether member approval for the transaction was sought and, if so, when, and
- the policies and procedures that the company or registered scheme has in place in relation to entering into related party transactions, and how compliance with these policies and procedures is monitored.
Particularly in view of guidance note RG76, nondisclosure of the (Genorah loand and accompanying) document constitutes breach of ASX listing rule 3.1 -- If it hasnt done this to date the company needs to refer to ASX guidance
note 4 and
8, which clarify the significance of disclosure, particularly in the context of foreign entities; A good crux message cited in
guidance note 8 is
"Compliance with Listing Rule 3.1 is critical to the integrity and efficiency of the ASX market and other markets that trade in ASX quoted securities or derivatives of those securities. Reflecting this, Parliament has given the rule statutory force in section 674 of the Corporations Act 2001 (Cth)" In other words the fact that Nkwe platinum
was listed on the ASX made it a
statutory requirement that it actually made a full disclosure of the related party Genorah Loan and document clarifying the conditions and why it should be deemed an arms length transaction (
as per RG 76 cited above).
Interestingly even the company has acknowledged in the past that Genorah is a related party- The
Company’s Annual Report for the year ended 30 June 2014" on page 50, Section 15 (c)(ii) it says that the $AU5.48million loan is registered under "Related Party Disclosures" and (c) is called "Receivable from Related Parties
To deny knowledge of statutory responsibility of disclosure of related party transaction whilst trading on the ASX can (in breach of listing rules and against ASIC guidelines on disclosure of related party transactions) can only be deemed as serious incompetence if not an attempt to cover up this by misleading the ASX- it is hard to determine which is the lesser evil but the latter is prosecutable.
