Nova breaches the Companies Act for the eighth straight year

The Nova Property Group has breached the Companies Act for the eighth consecutive year by not publishing its annual finance statements (AFS) within the prescribed six months following its year-end.

Nova, set up in 2011 and tasked to repay around 186 00 former Sharemax investors who collectively invested R4.6 billion in the failed scheme, failed to publish its AFS before the end of August, six months after its financial year-ended on 29 February 2024, as the Companies Act prescribes.

It is the latest insult to the investors, who remain in the dark as to whether Nova is in a financial position to repay them anytime soon. This is especially relevant as Nova failed to repay investors before 20 January 2022, as mandated by the Section 311 Schemes of Arrangement (SoA).

Nova’s most recent AFS reflected its financial position on 28 February 2023 — more than 18 months ago. It reflected a technically insolvent company facing significant cash flow challenges.

Read:
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Nova only published its AFS within the prescribed six month period in its 2015 financial year. In 2019, Nova published the AFS more than six months late.

Therefore, the 2024 AFS is critical to gauge whether Nova’s financial position has improved or further deteriorated. This would have a direct bearing on whether Nova could repay investors anytime soon, if ever.

Section 30 of the Companies Act

Section 30 of the Companies Act clearly states that companies must prepare AFS within six months of their financial year-end. In addition, and to remove all ambiguity, the Commission for Intellectual Property and Companies (CIPC) released at least two statements confirming this requirement. In a statement released earlier this year, the CIPC states: “In terms of Section 30 (1) of the act, a company must prepare annual financial statements (AFS) each year within six months [of] the end of its financial year. Within the same six month period, the annual financial statements must be audited in the case of a public company, state-owned company or any profit or non-profit company.”

Nova is a public company, and its AFS must be audited.

Section 30 of the Companies Act

Read: Moneyweb editor denied entry to Nova AGM, again

Nova response

However, when Nova failed to publish its AFS within the timeframe last year, Connie Myburgh, Nova’s chair and its auditor, ARC Incorporated, claimed the company was not in breach of the act. They interpreted the act as prescribing that the company must prepare the AFS and submit it to the auditors before the end of the six month period and that the auditing process could be completed beyond this period.

In response to questions Moneyweb put to Myburgh earlier this month, he said: “As you are fully aware, the subject matter of your email under reply was dealt with conclusively last year, by both our auditors and us, when you harassed our auditors and us in a similar fashion, regarding the same issue.

“We will not entertain your harassment again and will not communicate with you further in this regard. Should you report anything regarding this issue, please ensure that our above reply is published verbatim.”

Connie Myburgh, Nova’s chair. Image: Supplied

Read: Another slap in the face of Nova investors

Moneyweb also sent questions to two members of Nova’s audit committee, André Fourie and Nhlamulo Ndhlela, but did not receive a response before the article was published. (Ndhlela is also an MK member of parliament.)

Auditor response

Moneyweb also sent questions to Theo Rautenbach, a director of ARC Incorporated, inquiring whether a Reportable Irregularity (RI) has been filed with the Independent Regulatory Board for Auditors (Irba), as required if a company contravenes the Companies Act.

In response, Rautenbach said: “The obligation to report an RI is the duty of the registered auditor if the auditor is satisfied or has reason to believe that a reportable irregularity has taken place, and importantly meets the definition of a reportable irregularity.

“It is important to note that not all breaches of the Companies Act automatically result in an RI, as the auditor must use professional judgment and discretion to consider whether the breach meets the definition of an RI and then act according to the stipulations of the Auditing Profession Act (APA).

“This process is also a confidential one. It seems that you have access to this confidential information as you categorically state that ARC has not filed a reportable irregularity. Our regulatory board treats this process with the utmost confidentiality, and it is highly unlikely that this information is made available to the public.

“We, however, noted your concerns. We assure you that we conduct audits with the required professionalism and will not be influenced by interference of whatsoever kind,” Rautenbach said.

Irba confirms no RI was filed

Irba confirmed to Moneyweb that ARC had not filed an RI regarding the 2024 AFS but that since 2017, the company’s auditors have filed numerous RIs related to Nova’s inability to publish its AFS within the six-month period, among other matters.

The RIs filed in 2019 and 2022 were not resolved, and Irba referred them to the CIPC and Sars for possible investigation.

A summary of the RIs appears in the table below.

Imre Nagy, CEO of Irba, said in response to questions that Irba could not investigate the company and that its mandate is limited to investigating the auditor’s “working papers”.

“We do not have the authority to require a registered auditor to report any matter. The decision to report a matter as an RI is always based on the auditor’s professional judgment and whether they believe an issue identified during the audit qualifies for such reporting,” he said.

“If, for example, management has not prepared AFS for the commencement of the audit, the audit will be delayed. Therefore, no audit can occur until such time as there are AFS to audit. Auditors can, however, still be investigated for failing to adhere to the requirements of Section 45 of the APA. If, for example, an auditor does conclude that an RI exists and documents it as such in his/her working papers – then there would be no justification for the auditor then failing to report it to us as such. This could be discovered during an inspection process of the specific auditor or audit file,” Nagy said.

Read: Irba Reports Nova to Sars and CIPC

Trustee response

Jean-Pierre Tromp, the trustee of the Nova Debenture Trust, said the company has not only failed to publish its AFS within six months of the year-end but that it “is actually worse,” as Nova has only published it once within the prescribed timeframe.

“As from 2012 (when Nova was formed) up to and including 2024, only the 2015 AFS was signed off by the auditors within six months of the end of its financial year,” Tromp said.

“I respect that auditors cannot issue their audit report before completing their fieldwork. Therefore, breaching Section 30(1) of the Companies Act is solely the executive board’s complete failure to take their responsibility seriously. They are custodians of a group of companies with debentures totalling R2.2 billion, due to about 18 500 debenture holders, and it seems as though the company is managed like an ‘owner-managed, privately-owned company’. ”

Tromp added that “it is clear that the executive board has no proper internal controls in place to ensure the auditors will be able to issue their audit report within the prescribed six months. I also question the oversight function of independent committees like the audit committee to not address this with the seriousness it deserves.”

CIPC response

Ndileka Cola, the CIPC’s head of communication, said the institution takes all transgressions from the Companies Act very seriously but that “the extent of the transgression and its impact on the affected stakeholders determines the enforcement measures that the CIPC considered”.

She added that the CIPC may investigate such a company and lead to the issuance of a compliance notice. If the company does not comply with this notice, Cola said, the CIPC may impose “an administrative fine and/or imprisonment (this decision lies with the courts, depending on the merits and gravity of the implications caused by the non-compliance)”.

“Furthermore, such companies get classified as non-compliant against their disclosure certificates, negatively affecting their governance status/reputation. In other cases, tainted with repeated offences/contraventions, those charged with governance could be the subjects of delinquency applications.”

Cola said that Nova had been the subject of an investigation on three separate occasions. “Two of the incidents were proactively initiated by the CIPC, while their external auditor reported the third. Of the two CIPC proactive investigations, one led to the issuance of compliance notices. The accompanying inspector reports alluded to the Nova board’s failure to publish AFS timeously. Financial sanctions have not yet been imposed due to ongoing litigation.”

Read:
CIPC orders Nova to stop selling properties
CIPC concerned about Nova’s ability to repay debenture holders

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