- as court orders that it can be removed from list of the QMMH bank account signatories
TOP South African healthcare provider Netcare Group has been dealt a massive blow in the fight for control of the Queen ‘Mamohato Memorial Hospital (QMMH).
This after High Court judge, Justice Moroke Mokhesi, ordered that it can be removed by fellow board members from the list of signatories to the bank accounts of the Tšepong Consortium which runs the QMMH on behalf of the government.
The judgement was delivered after the Tšepong consortium’s founding director, Lehlohonolo Mosotho, petitioned the High Court to order all financial institutions to implement the board’s directive to remove Netcare general manager Christoffel Smith and others from the list of signatories to the consortium’s bank accounts.
With a 40 percent stake, Netcare is the biggest company in the Tšepong Consortium which runs QMMH on behalf of the government.
Four other companies, namely, Afri’nnai Health of South Africa, Excel Health, Women Investment and D10 Investments (all from Lesotho), hold the remaining shares. All the companies are represented on the consortium’s board of directors and together they can outnumber and outvote Netcare.
Netcare has been at loggerheads with its consortium partners who it accuses of failing to ensure the Lesotho government pays millions to the consortium for running QMMH on its behalf. The junior partners have instead accused Netcare of siphoning funds from the hospital and consortium.
Netcare has a pending High Court application to compel the government to settle a M686 million debt it says it is owed for operating QMMH on behalf of the state.
Netcare’s general manager Christoffel Smith filed the application early this year on behalf of the South African healthcare provider.
However, a separate case filed by Professor Mosotho in June this year has resulted in the judgement which allows three of the board of directors to remove Dr Smith and any other Netcare officer from the list of signatories to the bank accounts of the consortium.
The Tšepong Consortium, the Registrar of Companies and the Attorney General were the first to third respondents respectively in the June 2020 application by Prof Mosotho. The verdict was delivered last month on 9 July 2020 but the written judgement only became available this week.
“The board of directors of the first respondent (Tšepong Consortium) is ordered and directed to operate the banking accounts of the first respondent,” Justice Mokhesi ruled.
“In that regard it is ordered and directed that third parties including banks, financial institutions and other institutions must act on the instructions of the chairperson and such other member of the first respondent’s board…concerning all transactions in respect of the banking accounts, negotiable instruments, cheques, promissory notes…for and on behalf of the first respondent.”
Justice Mokhesi also ruled that three of the consortium’s board of directors constituted a majority which could lawfully convene meetings and make binding decisions of the consortium on various issues including “changing the signatures of any person including the current signatories at any banking institution or financial institution operating the banking accounts of first respondent (Tšepong Consortium). This gives the junior partners effective control of the consortium as they could outnumber and outvote Netcare.
Justice Mokhesi also ordered that the board could authorise the withdrawal of money from any banking institution, insurance company or any other institution that holds funds belonging to the consortium.
“It is declared that all the resolutions passed and approved by three members of the first respondent’s board of directors are binding on the first respondent (Tšepong Consortium), its shareholders, directors, employees and third parties.”
Justice Mokhesi also ruled that three board members acting in agreement could hire consultants, forensic auditors, financial advisors and legal advisors to conduct an audit of the accounts and financial statements of the consortium.
The judgement was handed down after Prof Mosotho indicated that the board had tried many times to engage a forensic auditor but Dr Smith, who been delegated authority to run the consortium’s affairs on behalf of the board, had refused to co-operate with the board.
Prof Mosotho alleged that Dr Smith had expressly stated that the forensic auditors would not be paid from the funds of the consortium.
“At one time he (Dr Smith) went so far as to suggest that the directors that authorise such forensic audit will be personally responsible and liable for the fees of such consultants. The issue of forensic audit posed a serious threat to this employee (DR Smith) and Netcare with the result that on 10 October 2019, when all arrangements had been made to engage forensic auditors, that employee (Dr Smith) and Netcare, tried to frustrate efforts to hold a board of directors meeting on 11 October 2019.
Prof Mosotho said that the Tšepong Consortium entered into a management contract with Netcare through which the latter was granted the power to manage QMMH.
He said Netcare was mandated to prepare QMMH’s financial budgets for consideration and approval by the board, after which the proposed budget may be presented to the shareholders for approval in accordance with the shareholders’ agreement.
He said Netcare’s budget proposal for QMMH for the 2018/2019 financial year was presented to the board for consideration at a meeting on 14 September 2018 but it was not approved for fear that the proposals could result in the hospital incurring losses.
“As a direct result of these concerns, the board requested Netcare to revisit some of the expense items and propose where to contain costs so as to be able to register a profit.
“In view of the concerns, the board did not approve the budget pending further submissions by Netcare in response to the board’s observations. Regrettably no further submissions were made for the entire year and Netcare continued to operate for the whole 2018/2019 financial year without an approved budget.
“The employee of Netcare (Dr Smith), to whom the board delegated its powers, was content with this situation because it allowed him and Netcare to make illegal transactions on the bank accounts of the respondent. I say the transactions were illegal because the payments would not be in accordance with an approved budget,” Prof Mosotho said.
He said Dr Smith recently presented a one-page document which he termed a budget paper for 2019/2020 financial year for consideration by the board of directors and that this was rejected by the board.
Prof Mosotho said the board instructed Dr Smith and Netcare to make a proper submission setting out the details and where possible provide supporting documents.
He said Dr Smith and Netcare disregarded the instruction and continued to run QMMH with an unapproved budget and use the consortium’s funds without the approval of the board of directors.
“There is no doubt that the board needs to seriously consider taking legal steps, which should include criminal prosecution, if criminal offences will arise from this conduct. But I could not remain silent and not take steps to bring the situation under control as I am doing by instituting these proceedings.
“As things stand Netcare and its employee (Dr Smith), to whom the board delegated its powers and with whom the board is at loggerheads, continue to make substantial transactions on behalf of the respondent company (Tšepong) without the approval of the board of directors.
“The bank statements will show a systematic looting of the funds of the respondent company (Tšepong) in favour of unknown persons, Botle and Netcare. The main beneficiary of this scheme is Netcare to the prejudice of creditors of the respondent company and its financiers.
“The bank accounts will show that on 16 January 2018 a transfer of M2 071 478, 77 was made to an unknown person. The same pattern of transferring substantial amounts of moneys without disclosing the person paid happened on numerous dates between 26 January 2018 until 30 September 2018.
“The total payments made to undisclosed persons for that period amounted to M312 874 456, 71. All these payments were not made with the approval of the board as section 96 requires,” Prof Mosotho said in his court papers.