Edition: May/July 2018
COVER STORY 2
Registrar in the wrong
But it wasn’t his fault. Or was it? Liberty does the right thing, and Alexander Forbes will too.
All hell broke loose in March 2014 when Rosemary Hunter, then the Financial Services Board deputy executive officer for retirement funds, presented her argument to the Pension Lawyers Association that it was unlawful for her predecessor to have cancelled the registrations of thousands of “dormant” funds. A consequence, she later insisted, was material prejudice to the funds’ members.
Dube Tshidi, the FSB executive officer and the Registrar, took umbrage and Hunter found herself in the midst of heated acrimony. The least of it is that her employment contract wasn’t renewed. Yet the battle continued, right into the Constitutional Court where judgment is awaited (TT Feb-April).
Whatever the Concourt decision, in a sense Hunter can already claim vindication. Liberty Group has successfully applied to the North Gauteng High Court for the Registrar to set aside the cancelled registrations of 25 affected funds. The number is likely soon to extend to some 90 funds. Between R80m and R100m is involved.
“This is a giant step in getting benefits paid to members,” says Liberty Corporate chief executive Tiaan Kotze.
After a series of acquisitions, Liberty found itself with the most cancelled funds by number. The cancelled funds administered by Alexander Forbes was probably higher by value. A few other institutions, less burdened, have yet to make their stance known.
Different from Liberty is the route to be taken by Forbes. Concerned only with those cancelled funds which were due disbursements from its contentious “bulking profits” a few years back, it’s understood that Forbes prefers not going to court for the cancellations to be set aside but instead to negotiate with the FSB (now the Financial Sector Conduct Authority) that allocations from the “bulking profits” be paid directly into the funds.
An estimate is that Forbes will pay these funds about R50m inclusive of interest. There’d then be proven assets in the funds, meaning that they cannot be “dormant” and their registrations cannot remain cancelled.
Liberty filed its High Court notice of motion last November. The order was granted when its application was heard in March, a month after the Hunter litigation against Tshidi and others was heard in the Concourt. It’s perhaps unfortunate for Hunter that, as respondents, Tshidi and the FSB hadn’t brought the Liberty papers to the Concourt’s attention.
Liberty’s founding affidavit was sworn by Chantal Hugo, head of terminations in the Liberty Corporate administration department. Despite various clean-up processes which addressed specific records, she identified certain “operational anomalies” which later indicated that there must have been errors in the clean up.
So she took it upon herself, she said, to conduct an internal audit and to rectify the anomalies. This was “during or about late 2013 and early 2014”. The timing would have preceded, or at most coincided with, Hunter’s bombshell.
“Based on the work performed by employees and agents (of Liberty) under my supervision,” Hugo stated, “I formed the view that not all the affected funds had ‘ceased to exist’...or been ‘wholly terminated’...because all the affected funds currently have assets and liabilities.”
In the absence of the affected funds’ management boards, the Registrar appointed Liberty employees as trustees. At the time it appeared that these funds had no members, assets or liabilities. However, this wasn’t the case.
Only later, after an exhaustive process of investigating each individual fund, did it become clear that the registrations of these funds had been “cancelled erroneously because the Registrar had received and relied on incorrect information and consequently made an error in law when he cancelled the registrations,” said Hugo.
There were different categories of Liberty’s affected funds. One lump was from the administration businesses that Liberty had acquired: Investec Employee Benefits (following Investec’s takeover of troubled Fedlife), Capital Alliance and Standard General Insurance. It implies a mountain of new funds in varying stages of administrative quality on systems that didn’t easily migrate.
Another category comprised affected funds that, when the Registrar cancelled these funds’ registrations, had been transferred to Liberty unclaimed benefits funds. After the transfers, it was discovered that the rules of the Liberty funds did not permit them to accept the transfer of unclaimed benefits for members who’d died prior to the transfers.
To its credit, Liberty has gone through the pain of sorting an unholy mess. Blame it on over-exuberance for having taken on board an abundance of flawed business. Blame it on IT systems. Blame it on poor reconciliation of records, including those of the FSB, or whatever. Nobody other than Hunter apportions any blame to the Registrar for having appointed trustees who were also employees of the administrator and for not having interrogated the information he was given.
Assets in the affected funds range from the minimal, such as a few thousand rand, to a few million. None is larger than the Bidcorp group pension fund.
The Registrar had deregistered the fund in December 2012 on the request of Liberty, Hugo explained, because it was under the mistaken belief that the fund had no assets and liabilities. But by December 2016 it turned out to hold R19,8m in aggregate assets.
From this amount, members and pensioners of the Bidcorp fund will receive benefits from which they might otherwise have been deprived. While the amount is significant, the principle is no less significant for those in smaller funds whose registrations shouldn’t have been cancelled.
In her Concourt application, Hunter asked for a court-supervised independent investigation into the circumstances by which the FSB cancelled the registrations of some 4 600 affected funds in order that it can remedy prejudice even to the tiniest.
Depending on the court’s judgment, there could still be a way to go.