The ‘Fat Cat’ charter of limited liability

Posted on June 17, 2011


Miners have died and thousands of dependents — wives, mothers, children and others —are suffering, many cold and hungry in the Highveld winter.  They are the casualties of the ambitions of Aurora Empowerment Systems, the company that took control of the Grootvlei and Orkney mines from the bankrupt Pamodzi Gold in 2009.

The promises of the politically well-connected board, including relatives of President Jacob Zuma and former president Nelson Mandela, along with Zuma’s personal attorney, Michael Hulley, proved worthless.

Four “zama-zamas” (miners illegally underground) were shot dead by mine security, and an unknown number of bodies of desperate men lie at the bottom of deep shafts.  They fell to their deaths while trying to salvage odds and ends to sell in order to survive.  As such, many mineworkers feel that this tragedy has not stirred the outrage it warrants.

There is also some criticism of the labour movement for a lack of solidarity.  When up to 5 000 miners are left unpaid for months;  when water and electricity are cut off to mine hostels where most of the unpaid miners live, why were there not mass protests?

Why, some union members are now asking, did not other unions and other mines come out in protest to force the government and the mining houses to take action?  This would truly have upheld the labour movement motto of an injury to one being an injury to all.

Instead, large quantities of steel pipe and flanges disappeared, along with steel headgear that was dismantled and was apparently sold, by the tonne, as scrap metal.  Pumping of underground water also ceased, allowing it to be contaminated and for millions of litres to flow into the Blesbokspruit to poison other waterways.

But the National Union of Mineworkers (NUM) and the Solidarity union that organised workers on the mines did protest.  For two years they raised complaints about what was happening and organised occasional food parcels to the unpaid miners.

In other words, the unions played by the book, allowing themselves to be constrained by legal formalities;  as one mainstream commentator notes, they “behaved responsibly”.   However, action, finally, was taken, with the liquidator team headed by the controversial Enver Motala, sacked and with control of the mines being removed from Aurora.

Now the mining unions are demanding redress.  This week  NUM general secretary Frans Baleni insisted that action be taken against both the sacked liquidators of Pamodzi and and the Aurora directors.  They should, he says, “be bought to book as soon as possible”.

The moral outrage is understandable; the desire for “those responsible” to pay up and be punished, equally so.  However, once again, the unions are hamstrung by legal reality, by the fact that legal and moral right are not the same.

Some unionists were shocked to be told of the gulf between morality and law, well illustrated in the concept of limited liability.  This has been described as “the fat cat’s charter to commit murder”, and is part of our economic system.

Because, unless it can be proved that any of the Aurora directors was personally guilty of theft, fraud or other criminal activity, they cannot be held liable for losses, damage or death incurred within the company.

It is the company — in law, a legal person — that carries the responsibility.  The personal wealth, along with the capital and the income generated by other companies with which Aurora directors may be involved, is also not affected.

Not that the politically well-connected directors are not relatively wealthy.  But the personal wealth of Khulubuse Zuma, Zondwa Mandela, Hulley or Thulani Ngubane has nothing, in law, to do with Aurora.

Zuma, the nephew of President Zuma, made this clear when, earlier this year, he was criticised for making a R1 million public donation to the ANC election campaign while workers at Aurora mines were still unpaid.  In the face of a union outcry, he noted that he had no obligation to pay money from profitable companies to those losing money.  He was correct.

This situation of limited liability is probably best summed up in a chorus in the comic opera, Utopia, by Gilbert and Sullivan:

“Though a Rothschild you may be, in your own capacity
As a company — you’ve come to utter sorrow
But the liquidators say:  ‘Never mind — you needn’t pay’
So you start another company tomorrow”

Similarly, the initial liquidators may be able to shrug off demands that they be investigated, let alone prosecuted, for their actions.  That they allowed an under-capitalised company to take control of the Grootvlei and Orkney gold mines was not illegal.

And just as there are no set qualifications for liquidators, there are also no set fees for the sale of “moveable assets”.   However, the unions want the R43 million fee paid to the liquidators for the sale of Pamodzi’s President Steyn mine to be investigated.

But South Africa’s Insolvency Act only sets a 3 per cent fee for liquidators for the sale of “immoveable assets”.   According to Motala, Harmony Gold, the JSE-listed company that bought the President Steyn mine for R439.6 million, bought a gold producer.  Gold, he says, is a moveable asset and a 10 per cent fee was levied on the sale price.

This fee has been upheld by the courts.  And the fact that it amounts to more than three times the unpaid wages owed to miners is, in law, neither here nor there.

As NUM spokesperson Lesiba Seshoka notes, this clearly illustrates that, “when companies fail, it is the workers who pay the highest price”.  NUM has also been scathing about the apparent political protection afforded Aurora.

This has resulted in widespread cynicism among unionists about politicians in general.  Some were also incensed this week when ANC Youth League president Julius Malema claimed to be a “real champion of the working class”.

“What did he ever say about Aurora?  What did he do?” a recently retrenched miner demanded.  “The only difference between bosses and politicians is that politicians are hypocrites.”

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