Landmark judgment sees trustees paying out R1m
Some of Medshield’s governance woes have been resolved by an historical judgment handed down in the North Gauteng High Court on 25 January 2013. Readers may recall that Medshield was placed under provisional curatorship in October last year, when the Regi
The High Court has now ordered Medshield’s trustees were ordered to pay legal fees of about R1m out of their own pockets. The trustees were found guilty of failing to protect the best interests of the scheme’s 200 000 beneficiaries and entering into illegal contracts with service providers.
This judgment sends a clear message that poor governance will not be tolerated and the regulator will not hesitate to protect the public.
Medshield is one of the largest and healthiest medical schemes in the country, with solvency well above the 25% required by the Medical Schemes Act. Despite its governance issues, it remains financially sound and sustainable.
Illegal activities by the trustees
The court found that trustees had illegally paid brokers ‘research fees’ amount to about R28m to incentivise them to sign up only young members to the scheme, which is unfair discrimination and illegal in terms of both the Medical Schemes Act 131 of 1998 and the Constitution. They were further found guilty of paying broker fees to unaccredited brokers, which is also illegal.
The court also found the trustees to be ‘conflicted’ in allowing a service provider, Sapling Trade and Invest 41, to fund their opposition to the regulator’s application for a curatorship.
Medshield refused to comply with directives from the Council for Medical Schemes ordering it to terminate these questionable contracts and recover illegal payments.
Medshield’s curator to stay on
Provisional curator Themba Langa, appointed in October, will stay on and manage the affairs of the scheme until a new Board of Trustees is elected, which must happen within one year of the judgment.
Langa’s report, sent to the CMS shortly after his appointment last year, indicated that four employees of Sapling used invalid proxies to elect five trustees with interests in Sapling, taking control of the Board for their own interests.
The chairperson of Medshield’s Board, Thabo Mabeta, asked the Chairperson of the Health Portfolio Committee of Parliament, Bevan Goqwana, to intervene when the CMS proceeding with its inspection into alleged irregularities by trustees. Mabeta was a majority shareholder of Inkwazi, a company the board of trustees appointed to deal with the scheme’s Road Accident Fund. He obviously benefited from the conflict of interest and even after he had supposed resigned from Inkwazi he was apparently still a 51% shareholder.
He was appointed acting CEO, which compromised his role on the board of trustees, and in addition he was not a member of the scheme when he was elected as a trustee, which contravened the rules of the scheme. Mabeta’s attempted political interference in the workings of the independent regulator raised red flags at the time.
Editor’s thoughts: Beneficiaries will be relieved that this historic judgment has found the trustees guilty. Meanwhile, the Council for Medical Schemes has advised brokers to act with restraint and give advice based on a proper assessment of the situation, with the best interests of their clients at heart. Does this judgment set a good precedent? Comment below or email [email protected].
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