Written by Roy Cokayne | Published on Moneyweb 29 April 2024
‘Lying to parliament’ and ‘violating accounting standards’ among the reasons cited.
A Cape Town-based attorney has lodged an application in the High Court in Johannesburg on behalf of 28 clients to declare the board of the financially distressed Road Accident Fund (RAF), its chair Lorraine Francois, and CEO Collins Letsoalo delinquent.
Kabelo Malao, sole director of K Malao Inc attorneys, lodged the application last Tuesday on behalf of the applicants, who he is representing in their claims against the RAF.
Malao said on Friday he had brought an application to declare the RAF board delinquent for allegedly:
- Lying to parliament;
- Contravening the Public Finance Management Act (PFMA);
- Violating the RAF Act;
- Violating South Africa’s Constitution;
- Failing to carry out its fiduciary duties; and
- Violating accounting standards.
The RAF board, chair, and CEO have not yet indicated if they will oppose the application.
Minister of Transport Sindisiwe Chikunga, Minister of Finance Enoch Godongwana, parliament’s Portfolio Committee on Transport, Standing Committee on Public Accounts (Scopa) and the parliament speaker were also cited as respondents in the application but are not required to oppose it and were cited as having an interest in the matter.
A date has not yet been set for the application to be heard.
The RAF was approached for comment about the application on Friday but has not yet responded to this request.
In terms of the notice of motion, the applicants have applied for the RAF board, Francois and Letsoalo to be declared delinquent directors for, among other things, allegedly:
- Failing to apply/deviating from normal accounting standards, which the applicants claim is unlawful;
- Having been found to be in contempt of court by multiple court orders; and
- Wasteful and fruitless expenditure.
The applicants also applied for the RAF, Francois and Letsoalo to be declared “incapable of running the affairs of any SOE [state-owned entity] or company”.
Malao said he had brought the application after exhausting amicable remedies encouraging Letsoalo and the RAF board to dispense from, among other things, wasteful expenditure and after the remarks made by Scopa members.
He added that this “well researched move” was prompted by the cumulative effect of the “mess” at the RAF perpetuated by the RAF board, Francois and Letsoalo.
Malao said the RAF board has a constitutional obligation to ensure the smooth functioning of the fund, which it has failed to do.
Interest bills
He said default judgments against the RAF led to Mora interest (interest paid on overdue payments, with the maximum rate set by the Prescribed Rate of Interest Act), which could have been avoided and is a direct contravention of the PFMA.
Malao said the sheriff in Centurion East alone in 2020 had already calculated interest of R2 billion.
He said one could only imagine the total amount of interest on the money owed to the applicants and other claimants to date if the sheriff in Centurion East alone could account for R2 billion.
Board, CEO ‘qualify as delinquents’
Malao said this wasted expenditure of taxpayer money should qualify the RAF board and Letsoalo as delinquents.
Malao’s reference to Scopa’s remarks refers to a committee meeting in February this year at which Scopa chair Mkhuleko Hlengwa suggested that Scopa institute action to declare the RAF board members delinquent directors for a “fishing expedition” of court oversight.
This followed the failure of the new board, which was appointed on 1 October 2023, to reverse the previous RAF board’s decision to institute litigation against the Auditor-General (AG) about the appropriate accounting standard to be used to prepare its 2021/22 financial results and its rejection of directives the RAF was given not to proceed with this litigation.
The RAF unilaterally changed its accounting standard in 2021 from the International Financial Reporting Standards (IFRS) 4 to International Public Sector Accounting Standards (IPSAS) 42, which means the RAF prepared its financial results as a social security fund rather than an insurer.
This change in the RAF’s accounting standard resulted in its liabilities for outstanding claims plummeting to R34 billion in 2022/23 from R331 billion in 2019/20.
It also led to the RAF receiving a qualified audit opinion from the AG for its 2021/22 and 2022/23 financial results because they did not fairly present the fund’s financial position at the end of these financial years.
This month, the High Court in Pretoria dismissed the RAF application to review and set aside the AG’s disclaimer of the fund’s 2020/2021 annual financial results and declare the disclaimer invalid and unlawful.
Responding to the judgment, Scopa welcomed the high court’s dismissal of the RAF’s application.
Scopa said it has on several occasions warned the board of the RAF and the Department of Transport to comply with the AG and not take this matter to court.
“The RAF’s insistence on pursuing litigation in this matter, despite being warned against this decision, has unnecessarily cost the state a lot of money in legal fees,” it said.
“Scopa reiterates its position that all the board members and the Chief Executive Officer of the RAF should be held personally liable for the legal costs of this case.”
However, RAF head of corporate communications McIntosh Polela said the court misapplied and misdirected itself to the facts before it, which the fund found “rather disappointing”.
Polela said the RAF was now taking legal counsel with a view to launching its application for leave to appeal the judgment.