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"Company News" on the 2 August 2005 carries an article about the suspension of the shares of Ransgols & Exploration and JCI by the JSE for not producing audited financial statements within the six month deadline. The chairman has apologised to shareholders and explained that the difficulty arose because of the ownership of shares in Randgold resources. According to Company News, it seems that Brett Kebble informed the US Securities and Exchange Commission that his Company owned 31% of Randgold Resources. This was disputed by Randgold Resources and that Company claimed that Kebble's Company owned only 6.7%.
Those of us that expect these things to be clear - you just have to examine the share register after all - find this most unsatisfactory. When Kebble was asked to give evidence that he was the owner of the shares he said that he had "lent" the shares to an empowerment company, and that they were due to be returned. He also said that he could not disclose the identity of the nominee Companies for "confidentiality" reasons.
This is the kind of nonsense that has given rise to the King Commission, and the Sarbanes-Oxley act in the US. In an article by Charlotte Matthews, the deals are explained as relating to financing actions for R&E's Angolan diamond ventures, and to provide finance for a black empowerment transaction.
The fact remains that Kebble's Company cannot supply evidence that the pledged shares are in fact on loan. That is surprising because there should be contracts in place that give clear evidence of the ownership of the shares.
It seems to me that the contractual route of risk mitigation that is standard practice in business is flawed in Kebble's companies.
This can be the only conclusion when one considers the sanctions that have been imposed.
The share price of both listed Companies have taken a huge dive. JCI's shares at 16c were less than half this year's peak of 36c. R&E at 890c had shed 36% of its March peak of R13.90 according to Charlotte Matthews, writing in "Company News."
Further, it seems that Nasdaq has also threatened to delist R&E. Shareholders must be furious. Quinton George of Trinity Holdings is quoted as saying that the debt burden is not excessive as some of the assets, especially the diamond operations in Lesotho, are outstanding.
The lesson to be learnt is that Governance is King. Mess with Governance issues, and the sanctions will indeed be severe.
If the Group should fail at this stage, I would be surprised if the liquidator did not sue the Directors (including the non-executives) under section 424 of the companies act for trading dangerously.
All this is nasty, and Companies should understand that the days of the tangled web are over. Disclose or perish, and what you disclose must be adequately covered by clear concise understandable contracts properly drawn, managed and enforced.
Shareholders are very forgiving of mistakes, but detest being mislead.
Written by Peter Trickey - CEO : Realyst Contract Risk Management
Realyst was established in 1998, and specialises in Contract Risk Management focusing on Governance, Risk and Compliance, working with their clients to design and implement sustainable contracting processes and controls that mitigate risk and improve profitability.
The Realyst user base includes several large corporate organisations including arivia.kom, Discovery Health, Easigas, Foschini, MTN Nigeria, Multichoice, Primedia and Woolworths.
Prepared by: Lynne Mac Neill
Marketing Assistant - Realyst
Tel +27 11 463-5311
Fax +27 11 463-7179
e-mail lmacneill@realyst.com
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