The directors were fined in November 2009 for transactions that took place in October 2008.

Herbst and Potgieter had single stock futures contracts over Huge Group shares.

These positions ran into difficulty in October when the JSE raised the deposit necessary to hold them.

The directors were informed by their broker, Watermark securities, they had to put up a large sum of cash at short notice or face losing their positions.

They couldn’t come up with the money, and their positions were sold to Watermark at R3.70 a share on October 16, 2008, the prevailing market price at the time.

Watermark then sold the futures to Huge Group at R3.62. The value of the transaction was R29m.

In March 2009, the JSE announced that it had found the transactions to be a breach of Section 85 of the Companies Act.

Public opinion of the transaction was unkind; it was suggested that the directors had used company money to bail themselves out of personal financial difficulty.

The perception was not helped by a subsequent fall in the Huge Group share price.

In November, the JSE fined Potgieter and Herbst R5m each.

The exchange instructed Huge to put the offending transaction to shareholder vote for retroactive approval.

The shareholder vote was never taken because Herbst and Potgieter appealed the JSE’s ruling.

The appeal was heard by the Financial Service’s board three- member appeal board.

The board is headed by former Appeal Court Judge Craig Howie.

The board upheld the directors' appeal with costs.

It set aside the JSE’s findings that the directors had breached section 85 of the Companies Act.

It also set aside the finding that the directors had breached section 5.69 of JSE listing requirements “by way of having Huge effected a specific repurchase of its securities from related parties.”

However, the appeal board substituted the set-aside findings with a new one.

It found that the directors had breached section 5.69 by entering “into derivative transactions that might or would result in the repurchase by Huge of its securities in terms of a general authority without complying with section 5.69 in that approval of shareholders in terms of a special resolution of Huge was not given for such transactions.”

The board set aside the original fines of R5m per director, and replaced them with new ones of R3m each.

Huge Group’s James Herbst says he and Potgieter are “satisfied with the results” of the appeal. Asked if this means  the directors will now pay their fines, Herbst responds that he and Potgieter will continue to be led by professional advice.

Herbst says there may be “ancillary debates” that arise as a result of the appeal board’s decision.

Herbst says the fact that the appeal process took so long is testimony to the complexity of the transactions that took place and the regulations that govern them.

 – julius@moneyweb.co.za