Trustco loses legal battle in SA's apex court
Supreme Court rules in favour of bourse
This week's Supreme Court of Appeal of South Africa ruling upheld the local bourse's right to order listed companies to restate their financials if it finds inaccuracies.
Trustco Group Holdings (TGH) has been ordered to comply with a directive issued by the Johannesburg Stock Exchange (JSE) and reinstate its financials under that bourse’s pro-active review process.
It relates to a long-standing legal battle between TGH and the JSE to have the company reinstate its financials after some errors had been discovered in a matter dating back to December 2019.
After the JSE handed down its initial decision in late 2020, Trustco took it on review with the Financial Sector Conduct Authority (FSCA). But in November 2021, the financial regulator dismissed Trustco's review.
On 5 December 2019, the JSE advised Trustco that its financial statements had been selected for review under its ‘pro-active review process’ and subsequently referred three issues to its Financial Reporting Investigation Panel (FRIP).
Two related to entries in respect of the loans by TGH founder, Dr Quinton van Rooyen, and the other to the entries reflecting the reclassification of the immovable properties from inventory to investment properties.
On the FRIP’s advice, the JSE informed Trustco, on 16 October 2020, that the entries did not comply with the prescripts of the International Financial Reporting Standards (IFRS). Trustco, on its part, objected to that decision in terms of clause 1.4 of the JSE Listings Requirements.
On 11 November 2020, the JSE dismissed the objection and directed Trustco to restate its annual financial statements for the year ending 31 March 2019 to correctly reflect the nature of the transactions.
The judgment
“With regards to the issue of the JSE’s powers to direct listed entities to restate financial statements, the Supreme Court of Appeal (SCA) held the view that the JSE Listing Requirements grants wide permissive powers to the JSE to instruct listed entities, in its sole discretion, to ‘publish or reissue any information it deems appropriate’,” the SCA said in its judgment.
The SCA reasoned that these wide powers are underpinned by the Financial Markets Act, which, respectively, empower the JSE to do “all other things that are necessary for, or incidental or conducive to the proper operation of an exchange and that are not inconsistent with this Act” and to impose any penalty that is “appropriate in the circumstances”. In the circumstances, the SCA concluded that both grounds (a) and (b) of the review application could therefore not succeed.
In addressing new arguments advanced in oral arguments before the SCA, namely, that in appointing the Tribunal panel, Judge Louis Harms failed to exercise the discretion vested in him in terms of the FSR Act and that the Tribunal accorded undue deference to the JSE’s views, the SCA held that this review ground was not raised in the High Court, neither was it raised in Trustco’s written argument on appeal to the SCA.
The SCA made an order dismissing the appeal with costs on attorney and client scale, including the costs of two counsel, where so employed.
It relates to a long-standing legal battle between TGH and the JSE to have the company reinstate its financials after some errors had been discovered in a matter dating back to December 2019.
After the JSE handed down its initial decision in late 2020, Trustco took it on review with the Financial Sector Conduct Authority (FSCA). But in November 2021, the financial regulator dismissed Trustco's review.
On 5 December 2019, the JSE advised Trustco that its financial statements had been selected for review under its ‘pro-active review process’ and subsequently referred three issues to its Financial Reporting Investigation Panel (FRIP).
Two related to entries in respect of the loans by TGH founder, Dr Quinton van Rooyen, and the other to the entries reflecting the reclassification of the immovable properties from inventory to investment properties.
On the FRIP’s advice, the JSE informed Trustco, on 16 October 2020, that the entries did not comply with the prescripts of the International Financial Reporting Standards (IFRS). Trustco, on its part, objected to that decision in terms of clause 1.4 of the JSE Listings Requirements.
On 11 November 2020, the JSE dismissed the objection and directed Trustco to restate its annual financial statements for the year ending 31 March 2019 to correctly reflect the nature of the transactions.
The judgment
“With regards to the issue of the JSE’s powers to direct listed entities to restate financial statements, the Supreme Court of Appeal (SCA) held the view that the JSE Listing Requirements grants wide permissive powers to the JSE to instruct listed entities, in its sole discretion, to ‘publish or reissue any information it deems appropriate’,” the SCA said in its judgment.
The SCA reasoned that these wide powers are underpinned by the Financial Markets Act, which, respectively, empower the JSE to do “all other things that are necessary for, or incidental or conducive to the proper operation of an exchange and that are not inconsistent with this Act” and to impose any penalty that is “appropriate in the circumstances”. In the circumstances, the SCA concluded that both grounds (a) and (b) of the review application could therefore not succeed.
In addressing new arguments advanced in oral arguments before the SCA, namely, that in appointing the Tribunal panel, Judge Louis Harms failed to exercise the discretion vested in him in terms of the FSR Act and that the Tribunal accorded undue deference to the JSE’s views, the SCA held that this review ground was not raised in the High Court, neither was it raised in Trustco’s written argument on appeal to the SCA.
The SCA made an order dismissing the appeal with costs on attorney and client scale, including the costs of two counsel, where so employed.
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