John Field, MD and owner of Fedbond, has come out of a two-year battle with the Financial Services Board (FSB) victorious and with a reputation for being willing to take on anyone to look after the interests of his 1 000 elderly mortgage participation investors and himself.
Pretoria high court judge Ben du Plessis this week rejected almost every argument submitted by FSB deputy CEO Rob Barrow for placing Fedbond, SA's biggest mortgage participation bond company, in curatorship.
Barrow said Field should be held accountable for the directors of Fedsure, Fedbond's previous owner, lending too much to Industrial Property Development (IPD). The judge disagreed.
Fedbond was insolvent, said Barrow. But, said the judge, it was cash-flow positive.
The schemes were overgeared, said Barrow. The judge accepted Field's argument that the FSB had misinterpreted a government collective investment scheme gearing rule, the Collective Investment Scheme Act.
The FSB said Edwin Letty, the lawyer appointed by Barrow to jointly manage Fedbond early last year, had compromised his objectivity.
"There is no basis for a suggestion that his objectivity may have been compromised," said Du Plessis.
Barrow has confirmed that he will not remove a block on Fedbond accepting any new participation bond business.
Barrow appointed Letty, a former CEO of Professional Provident Society Insurance, as joint manager in February 2004.
There is no doubt Fedbond had problems. IPD, which had more than half of Fedbond's advances, was defaulting on half-built, unlet properties. Field had started taking properties into possession to manage on behalf of his investors. He also took a 51% stake in IPD.
It was quickly clear to Letty that Fedbond could be saved and that Field had acted in its 1 000 investors' interests. He said the company was solvent and was ready in mid-2004 (see Property July 23 2004) to return to normal.
But Barrow applied to court in August to have Fedbond placed under curatorship with someone other than Letty as curator.
Investec had taken over Fedsure when it collapsed in 2001. But Field exercised his pre-emptive right to buy control of Fedbond, leaving Investec with a R344m investment in the company. Investec made its claim against Letty for payment. It eventually settled for R150m.
Field has always claimed that Fedbond could manage its way through its problems.
Clearly, he and Barrow are not finished with each other. If Field cannot build new business, his company will shrink by two-thirds as he sells buildings and pays back investors. He may be tempted to delay sales and payouts. More court cases loom.
