HIPPO Valley Estates’ former finance director, Mr John Chibwe, has filed a High Court application seeking to nullify and set aside a forensic audit report that linked him to financial misconduct at the sugar producing company.
Tongaat Hulett, third respondent and major shareholder in Hippo Valley estates, published findings of a forensic audit report by PriceWaterhouseCoopers (PwC South Africa) (fourth respondent) into its operations and those of its subsidiaries, which alleged wrongful conduct by Mr Chibwe.
The South African audit firm concluded that certain senior executives, Mr Chibwe said, initiated or participated in undesirable accounting practices that resulted, among others, in revenue being recognised in earlier reporting periods than it should have been, and in expenses being inappropriately capitalised to assets.
“This resulted in profits in the respective years being overstated, and in the overstatement of certain assets in THL’s financial statements,” Tongaat Huletts claimed. The firm said it would institute civil action against the alleged culprits.
The PwC investigation also revealed that there were a number of governance failures pursuant to which internal policies, guidelines and frameworks were not followed, creating an environment in which “senior executives could initiate or participate in the financial reporting misstatements”.
Other respondents cited in Mr Chibwe’s High Court application include the Zimbabwe Sugar Sales Limited (first respondent) Hippo Valley Estates (second respondent) and Price Water Coopers South Africa (fifth respondent).
In the application Mr Chibwe said the audit report ought to be declared a nullity and the unlawfulness of such a “sham process and outcome” must be pronounced as by the court, as nothing can depend on a nullity.
“I therefore pray that the court declares the audit report null and void, and sets it aside in those respects that pertain to me,” he said.
He said the fact that the audit was done at the instigation of Tongaat Hulett, itself the major character on the board of directors, the alleged transactions having been found to be correct by the auditors and accepted by the shareholders of Hippo Valley Estates, leaves a messy staining which must be cleared.
“Auditors went out of bounds and beyond what Tongaat could do as a member/ shareholder. As a matter of due process, the audit in respect of the first and second respondents should have been sanctioned by their respective board of directors in terms of their articles and memorandum of association,” said Mr Chibwe.
“I further wish to state as a matter of fact that first and second never commissioned a forensic audit investigation into their affairs. I say this truly because of my position then as a board member of the two entities.
“In so imposing the audit, the third respondent violated the first and second respondent articles of association and extant provisions of the then Companies Act, which provided for companies to come up with rules on how such a process should be conducted.”
He averred that the audit process and its subsequent findings must be nullified as a matter of law because it was undertaken by fourth and fifth respondents in violation of the Public Accounts and Auditors Act (Charpetr 27:12), which provides for prior registration in Zimbabwe of any auditors, forensic auditors included, by the relevant regulator.
“I aver that the auditors who undertook the audit process whose resultant report I am taking issue with herein were not registered here in Zimbabwe and could not, as a matter of law, come up with a valid outcome.
“The audit report was also sanctioned and commissioned by the third respondent in direct violation of the then operative Section 196 of the Companies Act (Cap 24:04) as read with Section 198 of the same act. The court is therefore praying to annul the audit report as it was done in disregard of extant legal instruments,” read part of the application.
Mr Chibwe said he further wished to state as a matter of fact that first and second respondents never commissioned a forensic audit investigation into their affairs, therefore, in so imposing an audit, the third respondent violated the first and second respondent’s articles of association and extant provisions of the then Companies Act, which provided for companies to come up with rules on how such a process should be conducted.
Mr Chibwe also argued that the forensic investigation was a legal nullity, as the manner in which the audit process was done violated his rights.
“I was never informed that I was under an audit process by the representative of the fourth and fifth respondents who questioned me regarding the bulk sugar sale at first respondent and an alleged buy back letter from BancABC.
“It remains anomalous for the auditor not to ask me to explain certain practices within an organization, in particular first and second respondents, only to turn up attacking me on the same issues in the final report.
“Indeed, shocking as it is, I never commented nor clarified on all the issues ascribed to me as wrong doing, save for the brief comments I made to Trevor White at second respondent, not knowing that it was a forensic audit investigation.
“In its substance, the forensic audit report is grossly inaccurate and can easily pass off as a hatchet job meant to soil my name, career and reputation,” he said.
Mr Chibwe highlighted that the fourth respondent concluded that the bulk sugar sale conducted by the first respondent was linked to the bonuses I earned as a finance director of the second respondent when the same is not correct.