AFRE Corporation says it will explore a legal route to recover US$1,3 million the company lost in a scrip lending deal that went bust during former executive chairman Patterson Timba’s administration.
Afre CEO, Douglas Hoto, told analysts and journalists in the capital this week while presenting the group’s full-year financial results to December that the company would pursue a legal route to recover funds the group was prejudiced.
“We are pursuing the recovery of these amounts through the courts,” he said. He did not elaborate how far his group had gone with plans to institute legal proceedings to recover the lost amounts.
Although Hoto did not name Timba, the former executive was involved in a scrip lending deal that saw the financial conglomerate losing shares in Econet and RTG. Afre has been forced to provide for scrip losses of US$1,324 million as at December 31, 2012.
A report by BCA Forensic Audit Services revealed how Afre lost 314 342 Econet shares that Timba had lodged as collateral with Infinity Asset Management after the deposit was not paid on the due date.
Part of the scrip –– 10 980 989 RTG and 49 006 892 Pearl shares –– were reportedly sold by Bethel Trust to Renaissance Trading (Pvt) Ltd in a share buy-back arrangement for a purchase consideration of US$0,8 million in order to raise finance for RFHL.
This was despite the fact that the shares belonged to Afre, FMRE Property Consultancy (Pty) Ltd and Tristar. BCA concluded the US$800 000 transaction amounted to abuse of depositors’ funds and bordered on theft.
In the case of Tristar, 34 047 398 Pearl Properties shares with a value of US$1,06 million were taken over by Infinity Asset Management. A division of Afre, FMRE P&C also lost US$400 000.
BCA Audit Services showed how Timba fraudulently obtained Afre scrip to retire a personal loan to prominent tycoon Jayesh Shah, on a “round robin basis without clearly stating the nature of the transaction”.
The report also showed how the then Afre board appended signatures to the resolution in violation of Zimbabwe Stock Exchange regulations, given that the transaction had material impact on Afre’s shares.
Timba’s transactions, the auditors said, would have required relevant disclosures and a cautionary statement from Afre. Board members, at the time, who were involved in the script for loans transactions involving Timba were non-executive chairperson Rachel Kupara, non-executive director Ricky Mapani, chief operating officer Sibusisiwe Ndhlovu, group financial director Kennedy Lemani, group company secretary Charmaine Daniels, non-executive director Daud Dube, non-executive director Tose Ndebele and non-executive director Norman Nyazema.
Scrip lending violated Section 117 of the Companies Act (chapter 24:04) which prohibits the provision of loans to directors without the approval of directors at a general meeting of shareholders and full disclosures.
The then Afre board and senior management also stands accused of contravening Section 317 and 318 of the Companies Act when they conducted the company’s affairs in a “in a reckless and negligent manner.”
Among other things, Timba is accused of breaching his fiduciary duty when he acted to benefit himself whilst prejudicing Afre.
The latest bid to recover funds by Afre adds further problems to Timba, who got off allegation of abusing depositors funds at Renaissance Merchant Bank, now controlled by NSSA.