High Court in Pretoria. Picture: Jacques Naude / Independent Newspapers
In an unusual move, the Unemployment Insurance Fund (UIF) has sought to place directors of its choice in control of a private company to which it lent hundreds of millions of rand in public funds.
The matter came before the Gauteng Division of the High Court, Pretoria, with the UIF and Public Investment Corporation, which manages the UIF’s funds, as the applicants and Patricia Johnson, Urban Lifestyle Investment Holdings (Pty) Limited, and Homii Lifestyle (Pty) Limited listed as the respondents.
The court in July last year granted an order in terms of which the UIF is entitled to exercise all voting rights attached to the shares held by Urban Lifestyle Investment Holdings (Pty) Limited in Homii Lifestyle (Pty) Limited. It also ordered Johnson to convene a general meeting of the shareholders of Homii Lifestyle for the purpose of appointing new directors to the company. Homii Lifestyle is a subsidiary of Urban Lifestyle Investment.
While the companies were granted leave to appeal against the order in the Supreme Court of Appeal, the UIF again turned to the High Court in a bid to implement the court order while the appeal is pending. In a judgment handed down by Judge N Davis last month, the court ordered that the July order would “remain effective and enforceable despite the respondents’ pending appeal to the Supreme Court of Appeal.”
Homii Lifestyle is known as a major player in the property market, which has been involved in property investments in several cities. The Mercury reported a few years ago that it aimed to “convert existing buildings in major cities including Durban into affordable tech-based residential lifestyle developments for young professionals.”
According to the judgment, the UIF made the application to implement the order out of concern that the company might not be able to repay the loan. It said the company had already defaulted on its loan repayments and failed to provide the UIF access to its finances. The Mercury reached out to all parties concerned last Tuesday; however, none had responded by the time of publication.
The judgment established that a pending appeal suspends the operation of a court order appealed against. However, it said a court may order otherwise if there are exceptional circumstances or irreparable harm for the applicants, and these two conditions were met.
“Despite leave to appeal having been granted, it is on tenuous and highly technical grounds and detracts nothing from the undisputed indebtedness and default of the respondents,” the judgment stated.
The judgment noted that under a Mezzanine Facility Agreement, the UIF lent and advanced R410 million of public funds to the second respondent, Homii Lifestyle, a private property holding company. According to the Mezzanine Facility Agreement, Homii was obliged to make six-monthly interest payments. It is common cause that it had defaulted on its obligation to do so, despite having requested an extension to pay at one stage. According to the UIF’s calculations, the arrears interest amounted to R239 134 295.10 on 30 October 2023.
In clause 18 of the Mezzanine Facility Agreement, Homii further undertook to supply the UIF with its financial statements from time to time, including “each approved budget.” The judge said Homii has defaulted on these obligations as well, leaving the UIF and PIC in the dark regarding the financial status and viability of its defaulting debtor.
The UIF argued that it needed to protect their interests in the meantime and secure repayment of public funds. The security relied on is this: In a Cession and Pledge Agreement (the Cession) furnished to the UIF by Urban Lifestyle as security for Homii’s obligations, Urban Lifestyle ceded and pledged the voting rights attached to the shares it held in Homii.
The court stated: "The Cession agreement provides for an extraordinary remedy, that is, the taking over of the voting rights that a holding company has in respect of the shares it owns in its subsidiary."
“One can readily understand why this was agreed upon between the parties. When the PIC lends out public funds belonging to state entities to a property holding private company, it needs to keep track of the utilisation of those funds and the viability of its debtor. Failure to do so might compromise the recovery of funds that need to be kept safe for later use by the State,” it said.
The court said if no action is taken, there was a real risk that funds, which would be needed to pay unemployment insurance claims (and which had been lent to Homii), might never be recovered. “There is therefore no evidence that the respondents would suffer irreparable harm. The evidence suggests the opposite, namely that the intention is to prevent Homii from suffering any harm,” it concluded.
Cape Times