C2C Corporate Literacy – The Setheo, City Power Case Study – Building a Shared Understanding on Whether a Company Operates under the Control and Direction of Shareholders or Directors

Yesterday, the conversation in the Own a Radio4R500 WhatsApp group focused on building a shared understanding on whether a company operates under the control and direction of shareholders or directors.

On that note, the Setheo Engineering Pty Limited (Setheo) contract with City Power for an amount of R143 million to upgrade the Eldorado Park Substation in 2015 was used as the case study to better understand the issue that was being discussed.

At the instigation of the former Mayor of the City of Johannesburg, Mr. Herman Mashaba, two directors of Setheo Engineering were arrested as well as two employees of City Power.

These people were arrested for their alleged role in the dispute on the legal and financial basis on which R66 million was paid by City Power to Setheo.

It is not in dispute that the R66 million exchanged hands between City Power and Setheo pursuant to a valid contract between these two contracting parties taking into account that a registered company is a legal persona distinct from the members who compose it.

As such, in this case, it is a fact that City Power is a legal persona that is and must be distinct from City Of Johannesburg which is a shareholder.

However, in this unusual matter, no director representing City Power was arrested in relation to this dispute despite the fact that a substantial amount of R66 million would vacate the City Of Johannesburg for no apparent just and legitimate cause without any proper procedures being followed and no senior person taking responsibility for this alleged theft.

Ordinarily one would expect that the funds in dispute would not pass hands without passing the tests and protocols of City Power.

More-so, the idea that funds were paid in the ordinary course of business could possibly be tainted by externally induced actions seems bizarre and exposes City Power as an institution lacking corporate governance.

It is also the case that a company’s legal persona is not affected by the circumstance that a controlling interest in the concern may be held by a single member as is the case in relation to City Power in which City Of Johannesburg is the sole shareholder.

The conception of the existence of the company as a separate entity distinct from its founders is not merely an artificial technical thing: it is a matter of substance since property vested in the company is not, and cannot be regarded as vested in all or any of its members.

Based on the above, it is strange that Mr. Mashaba and the entire City Of Johannesburg councillors would hold and implement the view that the alleged theft of R66 million by Setheo from City Power caused a financial injury and prejudice on City Of Johannesburg.

It should be self-evident that the R66 million is property that was vested in City Power and equally the substation assets valued at R143 million was going to be transferred to the balance sheet of City Power and not City Of Johannesburg.

As such, a shared understanding on what a company is and what it is not would have helped in shaping and defining the true nature of the dispute in relation to the property in question.

Fortunately, the Connections2Ccommunities (C2C) initiative was created to help bridge divisions that follow from a lack of shared values and understanding on issues that matter.

In its search of a shared understanding on corporate matters, below is a thread that I had with attorney Mr. Bazuka, who practices law in Johannesburg, South Africa:

“[10/31, 6:43 AM] Mutumwa Mawere: Are you familiar with City Power’s legal existence?

[10/31, 6:43 AM] SA Lawyer Bazuka: Am just not into criminal or human rights law. It doesn’t interest

[10/31, 6:43 AM] SA Lawyer Bazuka: Am more in corporate and commercial law

[10/31, 6:43 AM] Mutumwa Mawere: The story is about corporate matters and literacy.

[10/31, 6:44 AM] SA Lawyer Bazuka: I know city power existence

[10/31, 6:44 AM] Mutumwa Mawere: It is common cause that Setheo’s contracting party was City Power and not COJ.

[10/31, 6:44 AM] Mutumwa Mawere: Is it a body corporate with a separate and distinct persona?

[10/31, 6:45 AM] SA Lawyer Bazuka: City Power is an entity of CoJ

[10/31, 6:45 AM] Mutumwa Mawere: What does this legal mean? What does an entity of COJ mean?

[10/31, 6:46 AM] SA Lawyer Bazuka: CoJ owns City Power

[10/31, 6:47 AM] Mutumwa Mawere: What does ownership mean? What rights, if any, flow from this characterization of the relationship between two entities or parties?

[10/31, 6:53 AM] Mutumwa Mawere: Do you agree that there exists no shared understanding of what rights and obligations flow from the construct called ownership?”

It is clear from the above that even among learned people, corporate civilization and the rights and obligations that are inherent in this ecosystem are not generally shared to allow for consequences of any corporate actions to inform actions that unite and not divide opinions.

How many lawyers who carry status in society actually are ignorant of the properties of juristic persons and the limitations imposed on shareholders in relation to the operations of a company.

Mr. Mashaba is not alone in holding the view that City Of Johannesburg had jurisdiction to prosecute the Setheo matter.

Clearly, the officials of the City Of Johannesburg’s GFIS unit headed by Brigadier Shadreck Sibiya, the officials working for the Hawks who investigated the complainant, and the prosecutor working for the NPA should know or should have known better that City Of Johannesburg lacks or lacked legal capacity and incumbency to substitute City Power in this dispute.

Notwithstanding, the matter has roped in other people including Chifamba, a former employee of Setheo who was assigned to the project. Chifamba was arrested on 12 October 2020 on allegations that he played a part in the loss of R66 million by City Power.

Yesterday, Chifamba was denied bail on account of the fact that he is alleged to have worked in South Africa for Setheo without the requisite immigration papers.

However, the issue relating to his employment status was not before the Magistrate whose duty was simply to determine whether granting bail to Chifamba was in the interests of justice or not.

It is therefore significant that the decision not to grant bail to Chifamba was informed by an allegation that the entry into South Africa by Chifamba on 25 March was tainted by an alleged fraudulent stamp.

The issue of the status of the stamp was not before the presiding Magistrate who decided that before he can review his decision to refuse granting bail, he needed more information to conclusively determine Chifamba’s immigration status.

This case raises a number of legal, constitutional and corporate questions that if properly understood could help build bridges than walls.

If one assumes that the case against Setheo is fatally defective on account of the fact that no City Of Johannesburg officials possesses any facts to assist the Court in determining whether the payment of R66 million by City Power was tainted by fraud, then it follows that the whole prosecution enterprise is tainted by actions that are tantamount to perjury and defeating the ends of justice perpetrated by public office bearers.

The urgency and need of improving literacy on corporate matters cannot be overstated when disputes of this nature are alive and well in 2020.