The Unemployment Insurance Fund (UIF) has been accused by the courts of shifting positions, dragging its feet and failing to decide what case it wanted to make as it tried to stop liquidators from taking control of companies it is owed money by.
The KwaZulu-Natal High Court in Durban dismissed the UIF’s urgent application to rescind, reconsider or suspend an order giving immediate effect to provisional liquidation orders against the group of companies, including Educor, ULI, Homi and A1 Capital.
In a judgment delivered on 30 September, Judges Sipunzi and Chithi found that the UIF’s contradictory explanations for its conduct undermined its case.
The application was dismissed with costs, including the costs of two counsel where employed.
The ruling exposes a bitter dispute between the UIF and its own asset manager, the Public Investment Corporation (PIC), over who had authority to determine the fund’s litigation strategy as the liquidation proceedings unfolded.
The UIF argued that the May order had been made in circumstances where its position had not been properly placed before the court. But the judges found that the fund’s own legal representatives had appeared at the hearing and sought a postponement.
The court also found that the UIF had waited about five weeks before launching its rescission application and had failed to explain adequately why the delay should be excused.
It was not convinced that the delay was anything other than the result of the UIF’s “lackadaisical approach”.
In one of the judgment’s most damning findings, the judges said “the governance structures of the UIF had not finally determined its litigation position to be adopted, even at the time this application was argued,”
The court highlighted what it called a “striking inconsistency” in the UIF’s approach to the liquidation proceedings.
On 22 April, the UIF had argued that the appointment of provisional liquidators should not be delayed. It wanted the Master of the High Court compelled to appoint the nominated liquidators without further delay.
Yet an email sent the following day by Zodwa Manase stated that the UIF did not support the liquidation of Educor, ULI, Homi and A1 Capital.
The judges said the fund’s later attempt to distance itself from the position advanced in its name could not be reconciled with its earlier conduct.
The UIF also initially claimed that it had been absent when the court made the order on 27 May. In subsequent papers, however, it acknowledged that the State Attorney had represented it at the hearing.
The court found that the UIF had been aware of the proceedings, had been represented and had unsuccessfully sought a postponement.
Its contradictory positions made its argument based on absence “futile”.
The judges also rejected the suggestion that allowing the provisional liquidation orders to operate would cause irreversible harm to the UIF.
They said provisional liquidation is intended to preserve a debtor’s assets and protect creditors, including the UIF itself.
“There is no sound legal basis for this fear,” the judgment said, describing the UIF’s concern as appearing to arise from a misconception rather than reality.
The court warned that granting rescission in the circumstances would cause serious injustice to other affected parties and undermine the proper administration of justice.
The dispute also exposed a breakdown in relations between the UIF and the PIC over the management of litigation involving the fund’s investments.
The UIF had instructed the PIC to provisionally withdraw certain court proceedings involving Educor, ULI and Homi.
The PIC refused, maintaining that it was legally obliged to continue protecting the UIF’s investments. It argued that the disagreement should be resolved through the dispute-resolution mechanism in their investment management agreement.
The UIF characterised the disagreement as a constitutional dispute between organs of state, arguing that questions about authority, statutory duties and cooperative governance needed to be addressed.
The PIC and Nedbank, which opposed the UIF’s application, argued that the dispute was contractual and should be dealt with under the investment agreement.
The court found that the UIF had made a “conscious election” not to place the alleged constitutional facts before the court during the May proceedings.
It also noted that the UIF had not settled its litigation position by the time the later application was argued.
The judges declined to recommend that the judgment be referred to the Auditor-General and the Public Protector, as the PIC had requested, saying that doing so while related litigation remained pending would be “completely imprudent”.
However, the court said any party remained free to make such a referral.
The judges acknowledged that “the UIF is inherently entrusted with public funds” and warned that an adverse costs order against the fund could ultimately affect “unsuspecting members” whose money it manages.
The UIF collects unemployment insurance contributions equivalent to 2% of an employee’s salary each month, split between the employee and employer. The PIC invests the fund’s money on its behalf.
The litigation forms part of a wider series of disputes involving creditors seeking to enforce their claims against the companies in the group.
An appeal against the May order remains pending before the Supreme Court of Appeal.
