Investors used Aurora as their cash cow

2015-03-22 15:00

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Fazel and Solly Bhana asked their friends and relatives to lend money to the ailing mine, but repaid that money at high interest rates before paying workers

A struggling gold mine on Johannesburg’s East Rand doesn’t sound like a promising investment deal.

But Aurora Empowerment Systems consultant Fazel Bhana promised investors the mine was “going to print money”.

And, for a while – for a select few – it did.

While mine workers and suppliers went without pay, friends and family members of Fazel and his consultant father, Solly Bhana, made a killing by providing short-term loans to the company.

For an investment of R2.9?million, one investor received R5.7?million back in a matter of weeks.

Aurora’s bank accounts show that, during March 2010, the month unpaid miners at Grootvlei went on strike, Solly’s wife, his two daughters and son-in-law collectively received more than R1?million.

Between October 2009 and May 2010, Aurora made almost daily payments directly to investors, totalling about R35?million.

The recently released report from the section 417 inquiry into the collapse of Aurora’s mines found “the Bhanas immediately commenced to repay their own and Aurora’s personal loans, to the detriment of the companies, their employees, creditors and service providers, ignoring the plight of those who toiled every day?…?These loans were repaid with handsome rewards to the so-called investors from the first proceeds from the companies.”

Last year, Judge Eberhard Bertelsmann reached the conclusion that Aurora was insolvent when it made these payments. He instructed the first group of investors – including Solly’s wife, his two daughters and son-in-law – to repay R15.5?million in loans and interest.

The investors dispute that Aurora was insolvent when it repaid investors and have applied for a rescission of Bertelsmann’s judgment.

The argument from the liquidators is that when the investors lent money to Aurora, they became creditors and, because the company was insolvent, they shouldn’t have been given preferential treatment.

“You’ve got to stand in line with the workers and all the other creditors,” attorney John Walker said. “Because they [the investors] were paid before that, we want the money back.”

Details of Aurora’s investment scheme did not emerge until the 417 inquiry in 2011, when liquidators of Pamodzi Gold East Rand questioned why Aurora was making payments to various members of the Bhana family, who had rendered no service to the mines.

An extract from the transcript of the inquiry goes as follows:

Advocate Adrian Kruger: “So just tell me, was your mom?...?did she deliver any service to Aurora?”

Fazel Bhana: “No, but she funded us quite a bit.”

Commissioner Wayne Gibbs: “Sorry, could I just say?...?‘she funded us’?...?your mom funded Aurora?”

Fazel: “Yeah. You see, basically, when Aurora started off, they needed money for the first R15?million deposit to the liquidators?…?so we went to the whole Indian community, the black community.”

At the time, the liquidators were under the impression Aurora and their Malaysian investment partner, AM Equity, had the funds to pay for the mine. Instead, it emerged that Aurora was in debt from day one, hoping that when the funds from Malaysia came in they could repay their investors.

Fazel: “I go to the whole Indian community and say, ‘Guys, here is a mining deal, there is a strong [black economic empowerment] partner and we have got the funding coming. It is going to print money.’”

But when the funds from Malaysia did not materialise, the Bhanas and/or the directors of Aurora made the decision “to borrow from Peter to pay Paul” by paying out these loans from the meagre proceeds of the struggling mine.

The transcript of the inquiry continues as follows:

Fazel: “Certain people gave us money and they wanted the money on certain dates. If we don’t meet those dates, they would liquidate us or go for an urgent application. So what do you do? You try to keep everybody happy.”

Kruger: “So would these people be your mother, your sister?...?and your other sister? Would they liquidate you?”

Fazel: “Can I tell you, now the situation is so bad that they are in the hole for R20?million. They are saying: ‘Hey, you know what, you should have made sure you paid us before you went to pay the whole world.’”

The Pamodzi liquidators argue Aurora did not simply repay these loans, but repaid them at extraordinarily high interest rates, a claim the Bhanas deny.

An analysis of Aurora’s bank accounts shows that some investors received double their money back within just a few weeks, while others received millions, despite no evidence of them putting any money into the company.

.?Zobieda Bhana, Solly’s wife, and their two daughters Ferosa and Shamilla, collectively received R2.8?million from Aurora between October 2009 and May 2010, despite no record of them putting money into Aurora’s bank accounts.

.?Yaseen Theba, Solly’s son-in-law, put in R321?000 and received R4.3?million, although some of this was for work he did for Aurora. In response, Theba testified during the inquiry that Aurora used his bank account from time to time and some of the money represented repayments to other investors.

.?Solly Bhana’s racehorses even received R40?000. Solly claims it was repayment for money he lent Aurora.

The Bhanas have argued that some investors paid creditors and suppliers directly, and, as a result, the money they invested doesn’t reflect in Aurora’s bank accounts.

What makes the Aurora investment scheme even more questionable is not a single written agreement exists for any of these loans.

In response to questions about why no written agreements were drawn up, Fazel told Gibbs: “Your father would know from the old school. If you give your word, your word was good enough to raise money?…?Maybe before your time, Mr Commissioner. When you give your word to some people, they trust it.”

Unfortunately for the Aurora investors, the lack of written agreements could make it difficult for them to put in a claim on the Aurora estate. Any claim will also be complicated by testimony that the investors did not lend money directly to Aurora, but lent it to the Bhanas who, in turn, lent it to Aurora. If this is found to be the case, Aurora was not repaying its own debts but repaying the Bhanas’ debts with money that allegedly should have gone to workers and suppliers.

“[The investors] must come prove their claim – I don’t know how they’re going to do that, because according to all the records and affidavits filed in the Pamodzi matter, it’s clear they loaned money to Solly and Fazel Bhana and not to Aurora,” Walker said.

Last week, Walker confirmed the intention to pursue the remaining Aurora investors. Walker also said papers had already been issued against Pamodzi liquidator Enver Motala, who lent Aurora R3?million to pay salaries and creditors.

Unlike the other investors, Motala does not appear to have earned any interest on his investment.

Despite this, the liquidators still want him to return the R3?million loan and stand in line with other creditors.

“No court papers have been served on me,” Motala said last week. “Should such papers be served on me, the matter would be sub judice and I am not permitted to comment until such time as the matter has been formally heard in open court.”

Tomorrow, the directors of Aurora, including Khulubuse Zuma and Zondwa Mandela, and the Bhana’s will be back in the North Gauteng High Court in a separate court application, where Pamodzi is trying to hold them liable for R1.5?billion in damages to the mines.

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