saambou 'did not comply with companies act'
31 January 2008

The Pretoria High Court heard how two schemes established by Saambou to give incentives to managers did not comply with the Companies Act and ended up exposing the company to bad debt of about R150m.

KPMG partner Johan van der Walt, who assisted the Scorpions in their investigation into the collapse of the bank, told the court how the schemes had not considered the risk to the company and did not make separate disclosures about the schemes in the financial statements of Saambou Bank and Saambou Holdings, as required by law.

Saambou’s former director for personal banking, Charles Edwards, and the former group finance GM, Gerhardus de Clercq, pleaded not guilty to 10 charges of fraud, one of theft and two of contravening the Companies Act, involving R640m. The other accused, Saambou CE Johan Myburgh, died in December. Van der Walt said Saambou Holdings’ phantom share scheme was approved in 1992 to provide incentives for senior managers.

The bank issued phantom shares to staff, at a price determined by the company’s share price at the time . More than 500000 shares, which were not paid for, were given to managers in 1993 at a price of 87c each and the first two payouts to management in 1997 and 1998 equalled R30m.  Van der Walt said management failed to cater for this risk, which resulted in large payments in 1997 and 1998. These affected the primary capital of Saambou.

These bonuses were not disclosed separately in the Saambou Holdings and Saambou Bank financial statements from 1997 to 2001. Although general rules of the scheme said management could alter the price of shares or terminate the scheme, the scheme was cancelled only in 2000, when another share incentive scheme was established .

The arrangement was for a trust to buy shares from Saambou Holdings on behalf of three private companies known as Saambou Share Incentive Company 1, 2 and 3. Saambou advanced R96m to the share incentive trust for the payment of shares registered to the three companies in April 2001. When Saambou went under curatorship in 2002, with 35000 clients and R16bn in assets, the incentive companies owed Saambou R96m.

The loan to the trust was unsecured and repayments were wholly dependent on the share price . He said loans such as these should have been separately disclosed in the financial statement, stating risks associated with it such as lack of security and that interest was not payable.  Payment to 54 staff members who accepted the share incentive scheme was deferred until such time the liquidity situation in the bank was finalised.

The trial continues.

Ernest Mabuza, www.businessday.co.za