The High Court in Cape Town has dismissed an order seeking the removal of the joint liquidators of Mirror Trading International (Pty) Ltd.
There seem to be no end to the twists and turns in the MTI saga – one of South Africa’s largest insolvencies, with Bitcoin worth more than R1 billion held by the company in liquidation.
Operating as an internet-based cryptocurrency club, MTI pooled cryptocurrency investments from members and engaged in speculative trading. The company was placed under provisional liquidation on 29 December 2020, with a final order granted on 30 June 2021. Following an application by the joint liquidators on April 26 last year, MTI’s business model was declared unlawful as a multi-level marketing, or “Ponzi”, scheme.
The company’s sole director and chief exeutive, Johann Steynberg, is holed up in Brazil where he is awaiting an extradition hearing.
In a case recently heard in the High Court, Clynton Marks (first applicant) and Henry Honiball (second applicant) sought to remove Herman Bester, Adriaan van Rooyen, Christopher Roos, Jacoline Barnard, Deidre Basson, and Chavonne Badenhorst St Clair Cooper (first to sixth respondents) from their roles as the joint liquidators of MTI.
While the judgment, delivered on 12 March, described Honiball as a “a creditor”, it had much more to say about Marks.
Providing background to the case, the judgment stated that Marks claimed to be “a 50% shareholder of MTI, together with one Steynberg”. It went on to say that Marks strenuously opposed the liquidation of MTI and sought to appoint himself as a director, for this purpose, in Steynberg’s absence.
“He also claims to be a creditor of the company to the tune of R135.5 million odd in respect of Bitcoin and other cryptocurrencies which he ‘loaned’ to it, in order that it could repay investors when they tried to recoup their investments,” read the judgment.
The joint liquidators claimed that Marks, along with Steynberg, was involved in the fraudulent scheme. They refuted the idea that he was a shareholder of the company or that it owed him any cryptocurrency as a loan.
According to them, the Bitcoin Marks supposedly loaned to the company was not his own; rather, it was Bitcoin he had previously taken from investors and then returned to the company in a process known as “round-tripping”. The joint liquidators argued that Marks was one of the main debtors of MTI, owing the company millions.
Two sides of the story
In the founding affidavit, Marks accused the joint liquidators of breaching their duties to creditors and showing bias in handling claims. He claimed they were dishonest about a R6 255 8023 claim MTI had against JNX Online (Pty) Ltd, a related entity in liquidation. Marks alleged the liquidators allowed a questionable R7 190 930 counterclaim from JNX to be presented, despite knowing it was fraudulent.
Marks and Honiball further alleged that the joint liquidators knowingly admitted the false JNX claim to reject legitimate creditors’ claims, including Marks’. They accused the joint liquidators of manipulating the process and breaching their fiduciary duties.
Regarding the alleged failure to administer MTI’s estate properly, Marks and Honiball’s main complaint was the liquidators’ failure to file the company’s tax returns for 2020 to 2021. They alleged this had led to a significant tax assessment of more than R931m by the South African Revenue Service (SARS), impacting creditors.
The joint liquidators filed a detailed affidavit addressing the allegations made by Marks and Honiball regarding their conduct. They argued the application was an abuse of process because of lack of urgency and questionable motives. They highlighted a previous similar application by Marks and Honiball, withdrawn after several postponements, leading to punitive costs orders.
The joint liquidators claimed the applicants unreasonably delayed bringing the current application, suggesting it was brought to frustrate the winding-up process and avoid the proposed interrogation of Marks.
Regarding JNX, the joint liquidators defended the legitimacy of the JNX claim, stating that evidence supported JNX’s claim against MTI. They explained that JNX had produced evidence during testimony before a commissioner and had demonstrated through records and bank statements that it held a loan account with MTI.
The joint liquidators stated that all creditors, including representatives of thousands of investors, participated in the meeting where the JNX claim was presented. They also noted that legal representatives attending the meeting did not raise objections to the JNX claim at the time. The joint liquidators asserted that the validity of the JNX claim was still under investigation by the liquidators, as required by law.
Regarding the alleged failure to administer MTI’s tax affairs, it was pointed out that MTI’s financial and accounting records were either non-existent or in complete shambles when the respondents took over, and the company’s books of account had to be written up.
The joint liquidators further outlined their efforts to engage with SARS, including extensive investigations and negotiations, resulting in a settlement of the company’s tax liability.
What the evidence says
In the judgment, Judge Mark Sher stated that the explanations provided by the joint liquidators regarding the admission of competing claims in the JNX and MTI insolvent estates were convincing. He found no evidence of conflict of interest, lack of independence, bias, or favouritism in handling creditors’ claims.
The judge dismissed allegations of failure to administer MTI’s estate properly, noting it was the company’s and its director Steynberg’s responsibility to maintain proper records and file tax returns.
Judge Sher concluded that the allegations against the joint liquidators were baseless, and that Marks and Honiball failed to justify their removal. He emphasised the extensive work done by the liquidators, including questioning more than 154 witnesses, issuing more than 60 summonses, and participating in various legal proceedings.
“It would, in any event, be wholly against the interests of creditors and interested parties for the respondents to be removed from their positions at this stage,” said Judge Sher.
Besides dismissing the application, the court deemed the application an abuse of process and ordered Marks and Honiball to bear the costs on the attorney and client scale, including those costs incurred by SARS for intervening in the dispute.
“In addition, a punitive costs order is warranted because the allegations of serious misconduct which the applicants levelled at the respondents in the papers unfairly impugned their integrity and maligned their professional reputations and were entirely spurious,” said Judge Sher.
“MTI’s business model was declared unlawful as a multi-level marketing, or “Ponzi”, scheme.”. This statement is incorrect. Multi-level marketing is a legal business model, used by many legitimate companies. It is a poor business model, in my opinion, but legal non-the-less. MTI did use MLM as part of their business, but the fact that MTI was a Ponzi scheme, made it an unlawful enterprise.
There are also spelling errors.