'Fronting' claim in BEE groups' legal battle

21 April 2019 - 00:14 By MPUMZI ZUZILE

Growthpoint Properties' BEE shareholders Mlibo Mgudlwa and Mzolisi Diliza are heading for a showdown at the Broad-Based BEE Commission.
Mgudlwa, director of Africa Wide Investment Holdings, has lodged a "fronting" complaint against the property company and Diliza, who is chair of Miganu Investment Holdings.
Mgudlwa also approached the Johannesburg high court last month to force Diliza to open the financial books of Miganu.
The battle is focused on BEE shares in Growthpoint worth an estimated R600m.
In his complaint to the BEE commission, Mgudlwa accuses Growthpoint and Diliza of using Africa Wide as a front to obtain a higher BBBEE status.
Friction between Mgudlwa and Diliza dates to at least 2006, when Diliza was removed as chair of Africa Wide.
Mgudlwa has been quoted as saying Diliza was removed because he had made a "nefarious attempt to buy us [board members] out of Africa Wide".
He says that in response to being dumped, Diliza unilaterally removed Africa Wide from the Growthpoint empowerment deal in 2007.
Diliza confirmed he was aware of the court case against him but said he had not received notification of Africa Wide's complaint to the BEE commission.
Diliza said Miganu has never violated the BBBEE Act or been guilty of fronting in any way.
Mgudlwa says in an affidavit before the commission that he has been trying to get more information about the BEE deal with Growthpoint from Diliza for the past 10 years, without success.
He says in the affidavit that up until 2006, Africa Wide had held an 11% stake in Miganu, which in turn had a 33.3% stake in Growthpoint.
"We were paid small dividends by Diliza, but they were not equitable to the shareholding. We discovered that he has removed us and stopped us from receiving further dividends," Mgudlwa said.
Diliza is also the founding executive chair of Strategic Partners Group, the broad-based BEE partner in the Bombela Concession Company, which won the Gautrain contract.
BBBEE Commission spokesperson Madidimalo Ramare confirmed that the commission has received a complaint from Mgudlwa against Growthpoint and Diliza.
He said that in theory, "when an investigation reveals fronting then the matter is referred for criminal proceedings through SAPS and/or the National Prosecuting Authority".
Penalties for individuals can include imprisonment of up to 10 years. "If it is a company it will be fined up to 10% of annual turnover," Ramare said.
Under the BBBEE Act, contracts or licences awarded as a result of false or misrepresented information can be cancelled or withdrawn by any organ of state, he said.
"The entity can also be barred from doing business with government for up to 10 years."
Asked if Growthpoint and Diliza had filed responses with the commission, Ramare said such issues could not be discussed until all the processes were complete.
The final outcome of the case would then be made public.
"Investigations are sensitive by nature as they are based on allegations, which may or may not be true at the end," he said.
"Therefore, it is important that complainants treat information regarding the complaint as restricted, as required by the act, and allow the processes to unfold."
Growthpoint CEO Estienne de Klerk said the company was not aware that it was a respondent in the matter.
"This is a matter between the shareholders . We as Growthpoint Properties are not party to the affairs of this shareholder or any shareholder for that matter," De Klerk said. "At this stage we won't be engaging further on this matter."
Diliza said Africa Wide's allegations had no merit, in law or otherwise, and he would defend the action.
"Miganu will respond to these false allegations once it has formally been notified by the BEE commission of the basis for the complaint," he said.
Diliza said he had been trying for several years to resolve this matter through "rational, fact-based discussions between the parties, and is disappointed that Africa Wide Investments did not take up repeated offers to try to resolve the matter but instead launched its misguided court action".
He added: "Miganu does not intend to litigate through the media and will not be providing any further comment."
Miganu was one of three entities involved in the BEE deal with Growthpoint in 2005, which was worth R1bn and was one of the biggest such deals in SA at the time.

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