Legal blow for Trustco in SA

The JSE instructed Trustco to restate two sets of its financials, which will result in the Namibian-based group suffering huge losses instead of making massive profits in 2019.

24 November 2021 | Business

Despite several opportunities, neither Dr Van Rooyen nor Trustco has offered a commercial rationale for forgiving the first loan. – LTC Harms, Chair: FST

Jo-Maré Duddy – The Financial Services Tribunal (FST) in South Africa has dismissed an application by Trustco Group Holdings to reconsider a directive by the Johannesburg Stock Exchange to correct and restate its financial statements for the year ending 31 March 2019, as well as its interim results for the six months ending 30 September 2019.

For the 12 months ended 31 March 2019, Trustco reported a profit of more than N$725 million, nearly 165% more year-on-year (y/y). In the six months ended 30 September 2019, Trustco’s profit totalled nearly N$738.3 million, a y/y increase of 726%.

The issue with the JSE revolves around the waiver of two loans by Trustco’s majority shareholder, Quinton van Rooyen – one of N$545.6 million and the other N$1 billion – as well as certain of Trustco’s Elisenheim properties.

The JSE found that the group’s 2019 annual financial statements and its first half-year results in September 2019 did not, in material respects, comply with the International Financial Reporting Standards (IFRS). Trustco did not agree.

Dismissing Trustco’s application on Monday, FST chair, former judge LTC Harms, said the tribunal agreed with the JSE’s counsel that TrustCo’s “repeated failure to take the FRIP [Financial Reporting Investigation Panel], the JSE, and the Tribunal into its confidence by explaining the economic rationale for Dr van Rooyen’s waivers of the loans amounts to exceptional circumstances”.

The tribunal ordered Trustco to pay 50% of the JSE’s legal costs.


Van Rooyen - through his company Next Investments – advanced N$546 million to Huso Investments, a company with diamond business aspirations in Trustco’s resources segment.

The loan was structured so that its repayment was entirely within the discretion of Trustco and was recorded as an equity loan in the group’s books.

In February 2015, Trustco agreed to acquire the entire shareholding in Huso from Van Rooyen in terms of a sale of shares agreement.

The effective date was 30 September 2015, and the agreement was subject to conditions precedent. The purchase consideration was ‘payable’ by an issue of Trustco shares at N$4.69 per share, the major portion over nine years mainly determined with reference to agreed annual EBITDAASA targets in each year. EBITDAASA is defined as the cumulative earnings before interest, tax, depreciation, amortisation and after stock adjustments.

The loan was not affected.


The conditions precedent to the acquisition transaction could not be fulfilled and the share purchase agreement was amended in December 2016, which set new EBITDAASA.

According to the JSE, the sale of shares agreement for the purchase of the Huso shares included an EBITDAASA-based earn-out mechanism in favour of Van Rooyen.

In March 2018, the terms of the Huso loan were changed and it had to be paid within 12 months. The loan’s accounting status was then changed from equity to a liability.

The Huso transaction became effective on 4 September 2018. Twenty-six days later Van Rooyen waived the repayment of the Huso loan.

The JSE argued that Trustco did disclose to its shareholders that, by the time the group acquired Huso, the loan had been reclassified as a liability.

Consequent on the loan being forgiven Trustco then recognised a substantial gain of N$546 million in its 2019 annual financial statements.

“The conversion of the first loan from equity to liability and its subsequent forgiveness converted what was otherwise a loss-making resources segment to a profit, which also triggered the earn-out mechanism in Dr Van Rooyen’s favour,” Harms stated in his statement following the FST’s decision on Monday.

“Despite several opportunities, neither Dr Van Rooyen nor Trustco has offered a commercial rationale for forgiving the first loan,” he said.


In October 2018, Van Rooyen, through Next Investment, entered into a loan agreement of N$1 billion with Trustco. The repayment date was 31 March 2024.

“After eight months he waived/forgave this loan too, resulting in a N$1 billion gain which was recognised by Trustco in its September 2019 interim results and September 2020 financial statements.

“Here too, neither Dr van Rooyen nor Trustco offered a commercial rationale for forgiving the second loan. As with the first loan, this waiver/forgiveness triggered the earn-out provisions in terms of the Huso sale of shares agreement and Dr Van Rooyen or his investment vehicle, benefited handsomely from the allocation of Trustco shares,” Harms stated.

“The effect of the waiver on the interims was that the carrying amount of the financial liability (the loan amount) was derecognised and the amount was recognised in profit and loss as a gain,” Harms’ statement read.

He added: “The findings of the JSE that the result of the waiver was pre-determined by the terms of the loan and that the loan was in substance an equity contribution rather than a debt/liability instrument are not in dispute. In other words, although its treatment of the waiver was formally in order, the presentation was in substance untrue.”


The JSE also found that Trustco did not comply with the IFRS in that its annual group financial statements for the year ending 31 March 2019 reclassified certain properties in the Elisenheim development from inventory to investment property and thereby recognising a N$693 million gain.

The JSE instructed Trustco to restate its annual financial statements by reversing the reclassification of the Elisenheim properties.

Trustco acquired the land for development as residential property. It developed a portion of the land. However, in 2018 Trustco experienced a slowdown in demand and most of the land stood vacant and undeveloped.

Trustco’s directors in March 2019 resolved to retain a portion of land which would no longer be held for purposes of development and sale in the ordinary course of business. The board furthermore resolved to cease all works in relation to the development of the identified portion of the property for the purposes of a sale in the ordinary course of business, and decided that the identified portion of land was to be held as a long-term investment for capital appreciation.

Given the board's decision to change the purpose of the land, Trustco said it applied an accounting standard to reclassify the land for accounting purposes.

According to Harms: “A different timetable and a deferment of projects do not amount to a change in use. That leaves the objective factors. As the JSE held, these facts are neutral and are equally consistent with a delayed implementation of the use of the property as per its initial classification.”

Trustco, dual-listed on the Overall Index of the Namibian Stock Exchange (NSX), closed Monday at N$1.58 per share, down 19.4% from Friday.

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