Local giant retailer Pepkor has been blocked in its attempts to lay claim to a pension fund surplus of more than R100 million by the Cape High Court.
The decision by Judge Owen Rogers to stop the liquidation of the Pepkor Pension Fund follows an application by the Financial Services Board (FSB) to have its own earlier decisions to allow a total restructuring of the Pepkor Pension Fund into daughter funds set aside. The liquidation of the pension fund would have given Pepkor access to the surplus.
The daughter funds reflected the then financial structure of the company, with operating arms Ackermans, Pep Stores and Shoprite/Checkers each having their own funds.
Jeff Van Rooyen, the chief executive officer of the FSB and the Registrar of Pension Funds, expressed his satisfaction with the outcome.
"The judgment is a milestone in the advancement of a more equitable dispensation in the pension fund industry, in which the rights of members of pension funds are accorded more weight," he says.
Pepkor will "appeal the judgment, which we believe is wrong in fact and in law," Jimmy Fouche, chairman of the Pepkor Pension Fund and a Pepkor director, says.
He also claims the judgment will have little practical effect in stopping the liquidation of the fund.
The court awarded costs in favour of the FSB.
The judgment, according to the FSB, means that Pepkor will now have to go back to step one, applying the new Pension Funds Amendment Act, which sets out the process for the distribution of a surplus. The new law was enacted last week.
The new pension surplus law forces employers to reach agreement with all stakeholders in a fund, including former members, in the distribution of a surplus.
When Personal Finance initially reported that the case was pending, lawyers representing Pepkor unsuccessfully threatened legal action to prevent publication of this news.
The basis of the FSB's court action to stop the liquidation process, and to undo the transfers to the new daughter funds that it had previously allowed, was that it had been provided with false information about the size of the surplus by the Pepkor Pension Fund and Alexander Forbes, the actuarial consultants to the funds.
In a 265-page judgment, the court found that the "misrepresentations made to the registrar (by the fund and Alexander Forbes) concerning the Pepkor Pension Fund's funding levels had the effect that the registrar was precluded from applying his mind properly to the matterE"
Pepkor attempted to lay the blame for the incorrect information on a Sanlam actuary, but this was rejected by Judge Rogers.
"It is clear that the exclusion of the special surpluses was a business decision taken by the Pepkor Pension Fund in conjunction with Alexander Forbes," the judge said.
The court has also blocked a transaction involving special benefit payments of almost R9 million to the more senior members of Pepkor, including chief executive Christo Wise and Pepkor-appointed fund trustees; and Jimmy Fouche.
The FSB says that the money was transferred illegally from the mother fund to a new Pepkor fund.
Much of the opposition by Pepkor to the FSB application revolved around very technical issues about who did what and when, and whether or not they were entitled to do certain things in the first place. At the end of the FSB's presentation, Pepkor and its various retirement funds asked the court to dismiss the case.
Judge Rogers rejected the application, and Pepkor and its funds then closed their case without leading any evidence to refute that led by the FSB over 15 days.
The order given by the court was suspended to give all of the parties an opportunity to arrive at a more equitable distribution of the surplus.
The saga started in 1992, when a single Pepkor defined benefit pension fund served the various operating companies of Pepkor.
Pepkor decided to create separate pension funds for each operating company because the group was being run on a more decentralised basis.
New "daughter" defined benefit funds were created, which were funded to the extent of between 116 percent and 123 percent. The advice from the actuarial consultants at the time was a minimum of 110 percent funding.
This means that the assets exceeded the liabilities by more than the required 10 percent.
Against this, the assets of the "mother" fund at the time exceeded liabilities by 60 percent, meaning the bulk of the surplus remained in the mother fund - which would become available to Pepkor on liquidation of the fund.
The remaining members of the mother fund were 14 employees of the holding company, Pepkor, who were offered enhanced pensions to get them to agree to the liquidation of the fund.
There was no negotiation with ordinary fund members about the remaining surplus. Company appointed trustees were the only people making the decisions about which fund got what.
The unbundling process left the mother Pepkor fund with a very large surplus, currently just under R100 million, no active members and only 14 pensioners.
When Pepkor applied for liquidation of the fund the chief actuary of the FSB was suspicious about the size of the surplus. A review resulted in the successful court action.