Namibian company hit with punitive costs for JSE dispute

South Africa's Supreme Court of Appeal has saddled Namibian holding company Trustco with a punitive costs order for tying up the JSE in years of litigation with ‘no reasonable prospects of succeeding’ in an attempt to avoid restating its financial results. The ruling means Trustco must, after four years of litigation, accept that the JSE has the right to order it to restate its 2019 financial results – unless it hazards yet another appeal bid to the Constitutional Court, reports Fin24. Windhoek-headquartered Trustco was ordered to pay the JSE punitive costs on the attorney and client scale, including the costs of two counsel. Such an order requires the losing party to cover not only standard legal costs but also additional costs like meetings between the clients and attorneys. The SCA criticised Trustco's legal approach, stating it had ‘vacillated’ on the grounds for its appeal and argued issues in court that were not in its legal filings. In handing down its ruling, the court upheld the JSE's right to order listed companies to restate their financials. Doing so was vital for the smooth functioning of the bourse, it said. ‘It is manifestly essential that investors on the JSE are able to rely on accurate financial statements that comply with international accounting standards,’ said the ruling penned by acting SCA Judge John Smith. The case dates back to 2019 when the JSE started investigating Trustco, which has investments in mining, banking, insurance, real estate, and more. The investigation found that Trustco had incorrectly booked gains of about N$1.5bn (the Namibian dollar is pegged to the rand) after its founder and CEO, SA-born Quinton van Rooyen, ‘forgave’ two loans he made to the group.

By forgiving the loans, the debts were reclassified as profits, triggering an earn-out mechanism that granted Van Rooyen shares in Trustco. According to Fin24, the JSE also found that Trustco had wrongly reclassified properties linked to its ambitious plans to build a new city outside Windhoek. By reclassifying the properties from inventory to investment, it booked a profit of N$693m. In November 2020, the JSE directed Trustco to restate its annual financial statements for the year ending 31 March 2019 by returning shares, reversing the profits declared from forgiving the loans and reclassifying the property. Trustco denied that the JSE had a case and refused to restate its financial results.  After the JSE handed down its initial decision in late 2020, Trustco took it on review to the Financial Sector Conduct Authority (FSCA). But in November 2021, the financial regulator dismissed Trustco's review. The holding company then added a new argument – that the FSCA's panel lacked the necessary financial expertise to rule on the matter. After losing another appeal before the High Court, Trustco appealed to the SCA. In February 2023, however, it agreed to restate its financial statements as ordered by the JSE to lift the suspension of its shares. It arranged for the shares issued to Dr Van Rooyen to be returned to Trustco, reinstated the loans waived by him, and reversed the profits declared from the waiver of the loans. Trustco only did so to stop the suspension. However, it continued with its litigation, hoping a court would agree with it. But rather than agreeing with Trustco, the SCA has now agreed with rulings made by the High Court, the JSE, and the FSCA.

Judgment

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