Fresh SaXum allegations gets the FSCA talking

Caroline Da Silva – Deputy Executive of Regulatory Policy at the Financial Sector Conduct Authority (FSCA)

In October 2016, FAnews reported on the troubles of beleaguered insurer SaXum and its subsequent liquidation. 

Almost three years on and there are fresh concerns and allegations levelled against the insurer. These allegations were sent to FAnews in a confidential email from a source close to the insurer. 

We posed several questions to Caroline Da Silva – Deputy Executive of Regulatory Policy at the Financial Sector Conduct Authority (FSCA) – who spoke to the FAnews in an exclusive interview. 

Almost three years have elapsed and the liquidators of SaXum have again applied for a further extension until 30th September 2019. Why has the company applied for a further extension?

The joint liquidators have notified the Master of the Johannesburg High Court (The Master) of the intention on the part of the joint liquidators to file a first liquidation and distribution account in the insolvent estate of SaXum. 

The joint liquidators are currently preparing the account and will file it with The Master as soon as it has been finalised. The first liquidation and distribution account involves an extensive exercise, covering over a thousand claims and hundreds of transactions conducted in the administration of the insolvent estate of SaXum. 

The administration of the insolvent estate of SaXum has been characterised, from the onset, by several difficulties and challenges. 

To start with, on their appointment, the joint liquidators were faced with thousands of unassessed insurance claims against SaXum. This required (after consultation with the FSCA and the South African Insurance Association) an intense exercise, by the appointment of EOH Forensic Services (EOH). 

EOH embarked on the assessment of all the unassessed insurance claims. It is pertinent to point out that the existing staff left in the employ of SaXum after it had commenced liquidation and were incapable of assessing the unassessed claims. 

The assessment of the claims was necessary and critical from several perspectives in order for the liquidators to ultimately recover against the reinsurers, the paid-as-paid principle needed to be considered in the case of an insolvent insurer. 

In addition, the investigation was important:

• to determine the correctness and legitimacy of all insurance claims;
• to deal with claims that are assessed instead of them being unassessed in the liquidation proceedings or in relation to any compromise that would occur between SaXum and its creditors; and
• to incorporate only assessed claims, in the amounts assessed by the independent expert, in any liquidation and distribution account or compromised scenario that was being proposed at the time.

During a two-year period, the joint liquidators intended to affect a compromise with a third party. As SaXum is a regulated entity, it required the approval of both the FSCA and the Prudential Authority (PA). The PA only provided a resolution on the compromise in December 2018. The result being that it no longer became financially viable for the joint liquidators to continue with the compromise. 

According to a source close to SaXum, an amount of 19 million which was recorded in the liquidator’s trust account, has dwindled to next to nothing over the past two years. What is the FSCA doing to address/resolve this?

From the outset, SaXum has been characterised by several difficulties and challenges. For this reason, the liquidators had to appoint industry experts and legal experts throughout the administration process to assist them. The assessment of the claims was extensive and was conducted over a lengthy period. It also came at a huge cost to the insolvent estate of SaXum. 

Without clarity and the formulation of the claims against SaXum, and confirmation of their legitimacy and values, the liquidation proceedings and the compromise scenario could not be advanced for the benefit of the creditors of SaXum. 

In addition, in hope of a compromise being affected, the joint liquidators maintained the offices of SaXum as well as staff to assist with the running of the office. This was an immense cost to the insolvent estate. Once it became clear to the joint liquidators that the compromise was no longer viable, they proceeded to close the office and cancel the employment contracts of staff. 

Another cost of the liquidation has been the cost of engaging with a reinsurance broker to assist in settling reinsurance statements especially since SaXum was predominately reinsured by foreign reinsurers. 

During the last two years, the joint liquidators have made recoveries against certain debtors where the cost would not be prejudicial to the insolvent estate. 

As matters stand, the liquidators – with the assistance of legal experts – are in the process of pursuing various outstanding debtors and considering various legal actions which will be to the benefit of the creditors of the estate. 

What has transpired in the period of liquidation was that in many instances, contractual arrangements were put in place that were not in the best interests of SaXum. The action that would be taken by the FSCA will depend on the outcome of the investigation into the affairs of Saxum. 

Concerns have been raised by various parties that the FSCA has allegedly made very little progress in finalising the investigation into SaXum. What is the current progress of the FSCA investigation?

It is not correct that the FSCA has made very little progress in finalizing the investigation. 

The investigation has been completed to the point where the in-house investigation team has finalised a draft report which was made available to the investigated parties for their comment. The investigation team took this step because of the intricate nature of the case and the numerous issues and possible negative findings. 

These parties requested extensions to commit their replies because of the voluminous nature of the draft report and the seriousness of the allegations. 

It must be appreciated that the FSCA takes its responsibility to conduct investigations objectively and impartially seriously and as such all these replies must be properly considered before finalizing the report. 

Editor’s Thoughts:
It will be premature for the industry to jump to conclusions until the FSCA releases its report on the SaXum matter for general consumption. However, the allegations made by the SaXum source are troubling. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.