Former LeisureNet CEs facing lengthy jail terms

LeisureNet collapsed in October 2000 with liabilities of R1.2bn and assets of R302m. But the court this week found that it had not only been Gardener and Mitchell who were to blame for the collapse, but that company decisions had been taken at board level, notes a report on the IoL site. A Business Day report says the outcome of the trial is seemingly a victory for the two former CEs. They were acquitted on all but one of the charges, failing to disclose outside interests. The convictions involve R6m each, linked to interests they held in a German gym venture. However, the pair faces the prospect of about 15 years in jail – the mandatory sentence for such a crime. They also face the prospect of their assets being confiscated. Acting Judge Dirk Uijs found that the two had committed fraud by ‘deliberately’ concealing from the LeisureNet board their individual 20% interest in German gym company Dalmore, which was later sold to LeisureNet for DM10m (about R30m). Gardener and Mitchell received DM2m (about R6m) each following the transaction which they paid into overseas trust companies. Immediately after their conviction, Bruce Morrison of the National Prosecuting Authority, said an application would be launched by the Asset Forfeiture Unit in which it would attempt to recover R12m-R14m from Gardener and Mitchell. Full Business Day report Full report on the IoL site

Although convicted of fraud, they were acquitted on charges of theft, hiding the proceeds of crime, money laundering and income tax fraud. On the charges of income tax fraud, Uijs found that Gardener and Mitchell\'s version of events – that they had entrusted their tax affairs to professionals – was reasonably, possibly true and they had to be acquitted, says Business Day. He also did not believe Gardener was guilty of money laundering when he bought shares in Gull on the Roof, a public company that owned a house in Hermanus. He also acquitted both on a charge of trading in reckless circumstances, saying that a full board had been in charge. The matter has been postponed to April 9 to obtain correctional supervision reports on the two directors. They are out on bail. Full report in Business Report

NPA officials said the amount involved meant that under minimum sentencing rules they could be facing 15 year jail terms, and Gardener possibly even more when a previous conviction was taken into account – he was fined R2.9m on 14 counts of VAT fraud and one of insider trading, and given a suspended jail sentence, in a plea bargain arrangement, notes Business Report. Uijs said neither denied that they knew of their duty to disclose an interest in any entity with which LeisureNet did business, and there was evidence that disclosure was regularly raised as a preliminary issue at board meetings at the time of the Dalmore transaction. Full report in Business Report

LeisureNet liquidators have put the seal on two settlements with the former directors of the company, raising a total of R30m for creditors. Business Day notes the settlements, in which nine non-executive directors agreed to pay R18.5m, and Gardener and Mitchell agreed to pay another R11.5m, were described as ‘pragmatic’ in view of the costs involved and that the settlement was ‘commercially expedient’. Instead of paying lawyers, the agreement was to pay creditors. Estimates were that the case, the biggest civil claim against company directors in SA, would have cost in excess of R24m in legal fees. Full Business Day report