Hamon bust for fronting
Subsidiary of multinational bagged Eskom contracts by ‘selling’ shares to cleaning lady and messenger
Award-winning multinational company Hamon SA has been caught in a black economic empowerment (BEE) fronting scandal after allegations surfaced in court papers it had paraded a tea lady and a messenger as majority shareholders to improve its BEE status.
The Hamon Group was awarded the Ernst & Young L’Entreprise de l’Année award for 2011. Hamon SA has denied “any improper conduct” in its BEE and threatened legal action if City Press published the story.
The South Gauteng High Court on November 16 ordered Hamon SA to remove all directors the company appointed to the board of the joint venture, Hamon J&C Engineering, and to return all the majority shares it bought to J&C.
Hamon SA is a subsidiary of Belgium-based Hamon & Cie.
J&C directors Joseph Edward Peel Jr, Joseph Edward Peel Sr, Boniswa Pandela and Gillian Quari were granted permission by the court to withdraw from the joint venture agreement by buying back shares they sold to Hamon in 2010.
In its judgment, the court accepted J&C’s contention it could no longer associate itself with Hamon SA because the latter did not enter into a “genuine” transaction when it sold 26% of shares to a cleaning lady, Bongiwe November, and a messenger, Daphne Mangwana.
Both women bought 13% shares each for only R1, making them majority shareholders.
In court papers J&C said the business relationship it had with Hamon was jeopardised because an investigation into the BEE fronting allegations by the department of trade and industry (dti) “tainted” the joint venture’s name and Hamon SA failed to inform J&C of its “BEE” transaction.
J&C contended in court that “in the South African business environment, committing a fraud relating to broad-based black economic empowerment abuses the most vulnerable members of our community, so must be seen in a very serious light”.
“The nature of the work Hamon J&C engaged in often came from organs of state or public entities such as Eskom relating to air-pollution solutions for power stations.”
J&C contended the 26% shares were “significant because this is the amount of shares generally required for the ownership element of the BEE scorecard in order to optimise the points allowed for purposes of BEE”.
As proof that the sale of shares agreement Hamon signed with November and Mangwana “was a sham”, J&C said Hamon sold 1 089 288 “ordinary shares” for R1 and Hamon & Cie had reserved the right to repurchase the shares “at any time, on simple request”.
J&C argued that Hamon & Cie had reserved an option to reclaim the shares without transferring any value to November and Mangwana, and that it “very rarely occurs that shares are bought and sold in an arm’s-length transaction at net asset value, let alone for the sum of R1”.
Mangwana reported a case of BEE fronting to the dti in August last year. She told the court she and November “were not given an opportunity to read the sale agreements before they were signed”. Mangwana, who has worked for Hamon for 26 years, claimed Hamon SA’s then managing director, Richard Carew, took the agreement back and never furnished them with copies.
She claimed Carew told them to “go out and tell everyone they are now major shareholders of Hamon SA”. They only received an “unusual” shareholder’s allowance of R115 per week.
Mangwana said her position in Hamon SA did not change after she became a “shareholder”. She told the court she was aware that a “big deal” between Hamon SA and Eskom was pending.
Shortly after signing the share agreement, two overseas directors from Hamon & Cie, Philippe Delvaux and Clause Brinkmann, visited Hamon SA offices and told staff the company was “now with BEE” and doing well after it almost had to shut down.
According to Mangwana, less than six months later, on January 7 2011, Hamon & Cie “simply” took back the shares and they were told a “proper lady”, Hamon director Shirley Chauke, had been found as a BEE partner. The two women were paid R9 000 each for their shares.
In their heads of argument, Hamon SA argued the results of the BEE issue were “entirely speculative” on the part of J&C.
The company said the BEE issue J&C complained about had not resulted in any “oppression, unfair prejudice or disregard of the applicants’ interests”.
Hamon SA also argued Hamon & Cie had merely sought to empower members of Hamon SA staff, but after receiving advice that what had been done in fact did not constitute proper BEE empowerment as contemplated in the BEE Act, Hamon & Cie repurchased the shares from November and Mangwana.
Hamon SA believed what it had done was in “proper compliance” with the laws relating to BEE.
But J&C disagreed and argued that when Eskom awarded Hamon SA a multimillion-rand tender for the refurbishment of the Matla Power Station in 2008, the state power utility had issued requirements that had to be met, including that the successful contractor, Hamon SA, would be given an opportunity to reach BEE targets within 24 months.
J&C argued the sale of shares to November and Mangwana was done to “cure the difficulty” Hamon SA had in meeting Eskom’s BEE requirements.
The case comes as the BEE Amendment Bill, currently before Parliament, is soon expected to be published for public comment.
The bill proposes certain penalties, among others a 10% penalty on the annual turnover of convicted perpetrators, including individuals and entities.
The dti this week said it was no longer investigating allegations of BEE fronting after a settlement was reached between Hamon, Mangwana and November.
However, dti spokesperson Sidwell Medupi did not know the terms of the settlement agreement that prompted the department to close its investigation. Medupi was also unaware of the court ruling.
Hamon SA managing director Johannes van den Boorn declined to answer questions, saying these were “internal company issues and Hamon is not obliged to discuss these in the public domain”.
“We strongly deny any improper conduct and reserve the right to introduce an action for defamation,” said Van den Boorn, who referred City Press to court documents.