The Companies and Intellectual Properties Commission said yesterday that Nova Propgrow Group Holdings’ (Nova) should not be permitted to continue to operate without intervention and it was taking further enforcement steps by escalating the case to an inter-regulator level.
This, it said in a statement, was in order to maintain levels of investor confidence and mitigate the systemic risk of the economic phenomena that had led to the Nova case. Nova directors could not be reached for comment yesterday afternoon.
Nova has been the subject of an investigation by the Commission for allegedly trading recklessly and while insolvent. In 2011, some 18 700 Sharemax investors had voted for a rescue scheme to be repaid the R4.6 billion they invested in South Africa’s largest failed property syndication scheme.
A scheme of arrangement (SoA) tasked the Nova Property Group to take ownership of the former Sharemax properties and to manage them in such a way as to repay the investors by 2022.
On February 21, 2021, the commission issued a notice to Nova to explain why it should be permitted to carry on business or to trade.
“Subsequent to that, after the non-satisfactory response received from its board, the company was issued with a compliance notice on October 25, 2021 to afford it a final opportunity to prove beyond reasonable doubt that it would not be in a financially distressed position by the end of its financial year, February 28, 2022.
Following the company’s response, received on December 15, 2021, the commission “could not arrive at a satisfactory conclusion that the company is not engaging in conduct prohibited by section 22 of the Companies Act. Reasonable grounds still exist that the company is in contravention of … the Companies Act.”
A compliance notice was issued to the company on July 26, 2022, requiring it to temporarily cease carrying on its business, with the condition that it may continue meeting its contractual operational obligations, but may not dispose of any immovable property.
The commission said Nova had “not come close to full implementation” of the company’s purported scheme of arrangements to repay investors, as well as the directives issued and later withdrawn by the SA Reserve Bank (under the Prudential Authority).
Nova’s arguments about its obligations to debenture holders prompted an administrative and regulatory probe of the broader regulatory ecosystem within which Nova existed, including the fallout of the property syndication industry.
The causes of that fallout were diagnosed and areas were identified that may need further inter-regulator co-ordination.
BUSINESS REPORT