Where did the Trustco trust go?
The JSE likes substantive forms
They say names are destiny. But in the case of Namibian firm Trustco, the court found it failed to take the JSE, and other regulators, into its confidence about its number crunching.
Amid complex legal arguments, there has been a battle over the accounting concept of "substance over form" – which means that transactions of a firm should reflect economic realities rather than just legal disposition.
Ultimately, it would appear Trustco didn’t explain its rationale to get a break from the JSE on accounting standards.
Trustco was founded in 1992 and its interests span financial services, property and mining. It previously argued the JSE had no power to compel it to change its financials, and it was clearly frustrated by what it saw as inappropriate bureaucratic meddling.
According to the JSE, it "proactively" decided to review Trustco's financials at the end of 2019. Ultimately the bourse found it wasn’t complying with international financial reporting standards.
The investigation found that Trustco had incorrectly booked a gain of N$1.5 billion (the Namibian dollar is pegged to the rand) after its majority shareholder and founder - South African-born Quinton van Rooyen - waived two loans he had made to the firm.
It also "inappropriately" booked a gain of N$693 million when it reclassified land it was in the process of developing from inventory to investment. Trustco vehemently disagreed, and refused to restate its accounts.
JSE then threatened to suspend its shares. Trustco appealed the JSE's decision to the Financial Services Tribunal, which dismissed its review application. It then applied to the North Gauteng High Court in Pretoria to overturn the tribunal's verdict.
But the court found that rules are rules. It dismissed the appeal.
Even though Trustco lost, the court conceded it had acted in a "bone fide manner" - a point the firm seemed quite keen on emphasising.
In the latest developments, the JSE has said it would consider lifting the suspension of Trustco, as soon as it restates its financials.
Trustco's founder and CEO, Van Rooyen, confirmed the group would restate its financials as ordered. The firm said it now had the "actionable evidence" that it needed.
But (clearly a number of expensive legal minds involved), it did add in its statement that the restatement would be "subject to its right to appeal against the decision, and without prejudice to any other legal rights and remedies it might have in law". Form over substance?
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