Good curators are apparently a scarce commodity. The recent spate of curators who have resigned or been removed from their posts, however, raises questions about the processes used to select them.
Both the Financial Services Board (FSB) and the Council for Medical Schemes have defended their selection of the curators they have recommended that the courts appoint to take charge of troubled entities, such as pension funds, trust funds and medical schemes.
It is difficult to view the curators’ recent activities and not to wonder if something isn’t flawed. The sorry tale of events goes as follows:
Dines Gihwala – one of two curators of Fidentia, the financial services company that, under Arthur Brown, was found to have plundered money invested for widows and orphans – resigned after a court found that he had been a delinquent director in a matter involving another company.
The Western Cape High Court ordered Gihwala, the former chairman of law firm Hofmeyr, Herbstein & Gihwala, to repay about R6 million to Grancy Property after he and a co-director of Seena Marena Investments made what the judge called “secret profits” at Grancy Property’s expense.
Amid the news of Gihwala’s resignation, it also came to light that he is being sued by Liberty Medical Scheme. The claim, which amounts to millions of rands, arose from loans that Medicover entered into with property development companies that were subsequently not honoured. Gihwala was the curator of Medicover at the time, and Medicover subsequently merged with Liberty.
The court papers allege that Gihwala lent R5 million and R1.75 million to property developers without ensuring that the loans were properly secured. Some R180 000 of the loan of R5 million was repaid, but Liberty is seeking to recover the rest, plus interest, from Gihwala, claiming he was negligent, both as a curator and fiduciary and as a lawyer, in allowing the scheme to enter into such an investment.
Unfortunately for the FSB and its reputation, Gihwala’s resignation followed the resignation of the FSB’s chief financial officer, Dawood Seedat, amid allegations that he had accepted a R12-million bribe to assist Ahmed Hathurani, the chief executive of Metro Cash and Carry, with his tax problems.
Seedat gave evidence in aggravation of sentence at Brown’s trial, and there have been reports linking the other curator of Fidentia, George Papadakis, to the allegations against Seedat.
The FSB’s response is that it is monitoring developments as part of its duty to oversee the curators, but that curators are appointed by the court and the court will have to consider its response if the allegations prove to have substance.
The FSB has also said that it is not investigating the corruption allegations levelled against Seedat, because these must be investigated by the National Prosecuting Authority. However, the FSB said it is conducting an internal audit into what Seedat did while he worked for the FSB to ensure that the functions he performed were not compromised in any way.
All is not well
Earlier this year, it was the turn of the Council for Medical Schemes to have its image tarnished when the curator of Medshield Medical Scheme, Themba Langa, alleged that Dr Monwabisi Gantsho, the Registrar of Medical Schemes, asked him for a R3-million bribe.
Gantsho had approached the court that appointed the curator and asked it to remove Langa.
Gantsho alleged that the council’s relationship with Langa had broken down and that the curator negotiated a R10-million deal for him to buy Medshield’s trademark, despite this having little value for the medical scheme.
Langa’s counter-allegation about the bribe was contained in his replying papers filed in court. The allegation could result in his removal from the roll of attorneys if it is found to be untrue, and so presumably it was not made lightly.
After some delay, Gantsho was suspended and remains so, pending an investigation by the council.
About a year ago, Ngubekhaya Gobinca agreed to resign as the curator of Sizwe Medical Scheme in an out-of-court settlement. The scheme’s administrator, Sechaba, said in court papers that Gobinca was trying to terminate its administration and managed-care contracts but was compromised by conflicts of interest and was involved in negotiations to merge Sizwe and Medshield – negotiations that included a job for Gobinca in the merged entity.
The Council for Medical Schemes approached the court that appointed Gobinca and asked for his removal.
Fit and proper
How both death benefits and medical scheme benefits are managed plays a very important role in protecting our social welfare, so we should expect the regulators to ensure that only the most “fit and proper” people are appointed to oversee entities, particularly when these entities have already experienced governance failures.
So how are the regulators appointing curators?
Caroline da Silva, the deputy registrar for financial advisory and intermediary services at the FSB, says the FSB calls for would-be curators – typically, lawyers or accountants with relevant experience – to volunteer to be included on a list of potential curators. After vetting the candidates and their fees, the FSB compiles a list of potential curators whom it can recommend to a court when it needs to ask for an entity to be placed under curatorship.
The selection of the right person for a particular curatorship is based on how suited his or her skills are to the measures the curator will have to implement for the relevant fund, company or scheme.
Da Silva says that, before appointing someone, the FSB checks he or she has no conflicts of interest.
Curatorship orders are generally provisional initially, which enables anyone who has a valid criticism to raise it before the curatorship order is made final.
Da Silva says that, when Gihwala was appointed as the curator of Fidentia in 2007, there were no indications that he was unsuitable for the job. The cases involving Liberty and Grancy were filed later. Although the former has yet to be finalised, because it has been referred to arbitration, the latter was concluded only recently.
Da Silva says the FSB discussed the Grancy case with Gihwala, but had to await the outcome of the case before approaching a court regarding the suitability of Gihwala as a curator, because Gihwala said he had not done anything wrong.
Craig Burton-Durham, the head of legal services at the Council for Medical Schemes, says the council also maintains a list of candidates who are suitable for being appointed as curators, and continually refines this list to ensure curators are professional and their interests are aligned to those of the regulator. The council also uses the FSB’s “fit and proper” criteria before making recommendations.
He says the Protection of Funds Act, in terms of which curators are appointed, obliges them to account to the registrar, but when they do not abide by this requirement, the council is obliged to approach the court that appointed the curator to have him or her removed.
Burton-Durham says the regulator has used curatorship to successfully restore governance to schemes for years. He says it is impossible to foresee a lack of co-operation from curators, as experienced in the two recent cases, and in both cases the council acted swiftly.
The word in the industry is that the inquiry into the allegations made by Langa against Gantsho is close to being finalised.
It will be interesting to see if the inquiry into what transpired during Langa’s curatorship sheds any further light on the council’s recent choice of curators and the criteria it uses to identify potential curators.