Punitive costs in Trustco’s JSE battle

• Court affirms exchange operator’s authority to mandate restatement of financial statements

The Supreme Court of Appeal (SCA) has confirmed the JSE’s authority to compel companies to restate financial statements to ensure compliance with international standards, slapping Trustco with punitive costs in its longrunning battle with the JSE and Financial Services Tribunal. The secondhighest court dismissed an appeal by the group controlled by billionaire Quinton van Rooyen. The group had argued before the SCA that the JSE did not enjoy powers to direct companies listed on the exchange to restate financial statements.

The Supreme Court of Appeal (SCA) has confirmed the JSE’s authority to compel companies to restate financial statements to ensure compliance with international standards, slapping Trustco with punitive costs in its long-running battle with the JSE and Financial Services Tribunal.

The second-highest court dismissed an appeal by the group controlled by billionaire Quinton van Rooyen.

The group had argued before the SCA that the JSE did not enjoy powers to direct companies listed on the exchange to restate financial statements.

The company also challenged the makeup of the tribunal panel that heard its challenge to the JSE’s decision, arguing the panel that heard the matter lacked the necessary financial expertise.

The SCA on Wednesday threw cold water on the arguments and gave a punitive costs order — a rare order that indicates the court’s displeasure with the litigant’s conduct.

“Trustco has vacillated regarding its review grounds throughout the proceedings both in the high court and in this court and, in the end, it presented oral argument in respect of issues not foreshadowed in the pleadings or its heads of argument,” reads the judgment.

“The JSE has been put out of pocket because it was compelled to incur unnecessary costs to defend litigation that had no reasonable prospects of succeeding. It is thus only fair that the JSE should be indemnified in respect of those unnecessary expenses through a punitive costs order.”

The dispute between Trustco, a penny stock, and the bourse and the tribunal can be traced back to 2020.

At the time, the JSE suspended the trading in Trustco’s shares for not complying with its listing requirements and International Financial Reporting Standards in its 2019 annual and 2020 interim results.

At the heart of the exchange’s displeasure was that Trustco incorrectly booked a gain of R1.5bn after Van Rooyen waived two loans he made to the group.

The JSE in 2020 directed the company to restate its financial statements for the year to endMarch 2019 to correct certain entries relating to loans by Van Rooyen, who is its founder and CEO. The directive also demanded the reclassification of immovable properties from inventory to investment property and for Trustco to reverse the profits declared in pursuance of those transactions.

Trustco unsuccessfully challenged the JSE tribunal and later in the high court.

The SCA found that it was critical that investors on the JSE were able to rely on accurate financial statements that complied with international accounting standards.

“It is also self-evident that a market cannot properly operate without them. It is the JSE’s statutory obligation, in terms of its listing requirements under the Financial Markets Act, to hold listed entities to this imperative,” the court held in a unanimous judgment.

“And, where financial statements do not accurately reflect the nature of financial transactions in accordance with international accounting standards, the JSE must be entitled to direct restatement of the financial statements to ensure that the full and correct position is stated. Both these grounds of review can therefore not succeed.”

The JSE in March 2023 lifted Trustco’s suspension after it published its restated audited annual financial statements.

Trustco said: “The effect of the SCA’s decision is that the JSE’s decision to direct Trustco to restate its financial statements and to censure Trustco for its breach of the listings requirements remains.

“Trustco has effected the required restatements to its financial statements.”

THE DISPUTE BETWEEN TRUSTCO, A PENNY STOCK, AND THE BOURSE AND THE TRIBUNAL CAN BE TRACED BACK TO 2020