Rockwell in liquidation bid as audit uncovers irregular deals

ROCKWELL Diamonds has suspended operations at its Wouterspan plant in South Africa’s Northern Cape following a contract dispute with a mining contractor that has subsequently applied for the liquidation of Rockwell subsidiary companies.

The mining contractor – C-Rock Mining (CML) – has also filed for a “spoliation order” which, if granted by the court, sees certain equipment returned to it immediately from Rockwell’s premises.

Furthermore, Rockwell said that an independent forensic study of contracts involving its subsidiaries and CML had uncovered a string of irregular transactions involving one of its senior managers, whose name was not disclosed.

This latest news compounds a terrible period for Rockwell which in September saw its CEO of five years standing, James Campbell, resign from the company.

Campbell’s resignation followed a strategic view undertaken by a special board committee on August 28 aimed at evaluating “… the positioning of Rockwell in the diamond mining space, as well as the effectiveness of defined strategies that were implemented over the past period by the company”.

Commenting in its announcement today, Rockwell said that a mining contract with CML had been terminated after it had not proceeded in line with agreements. As a result, CML had “… applied for a spoliation order against the subsidiaries on November 7, 2016 and followed this up with applications for provisional liquidation of the subsidiaries”.

It added that it would “vigorously defend” the liquidation application which had arose from “… alleged claims pursuant to certain contracts which are in dispute.

“The company’s position is also founded, in part, on the results of a substantial forensic review recently completed by an independent forensic auditor in Johannesburg, which identified several instances of irregular transactions, unsupported transactions and irregular approvals, involving CML and a former senior Rockwell employee,” it said.

“The company is pursuing its legal remedies in this regard,” it added.

In the past 18 months, the company placed its Niewejaarskraal operation on care and maintenance whilst selling another, Tirisano. It then bought the Remhoogte/Holsloot project whilst retaining Saxendrift, a mine that had been under pressure, which was operating at a reduced rate and grade.

It then ran into commissioning problems at Remhoogte which appears to turn on understanding the types of gravels that it would be processing compared to its resource assessment prior to the project acquisition.

At the end of Rockwell’s fourth quarter, the firm’s auditors attached a note regarding it as a going concern saying that the completion of the new mining strategy and the timely ramp up of Wouterspan were risks.

3 COMMENTS

  1. Whilst the DMR is responsible for many of the ills in the South African mining sector, the directorate and management of Rockwell Diamonds is directly responsible for this calamity.
    I have written on many occasions regarding the complete unsuitability of both management and directorate (particularly the Chairman) of Rockwell Diamonds to manage the affairs of an alluvial diamond Company on the Middle Orange River.
    A host of clubby London “chap” directors out of legendary mining houses (where they have never actually had to work for a living) are directly responsible for this mess.
    The spin in the Press has also been astounding, and for the last five years has been mostly spin. I quote miningmx:
    “This latest news compounds a terrible period for Rockwell which in September saw its CEO of five years standing, James Campbell, resign from the company”. You sound sorry for the poor chap. This mess occurred on his watch. In a small company where controls and day to day management can easily be implemented. If you know what you are doing. Fact.
    Campbell mismanaged the Company for 5 years. He should have been summarily fired 4 years ago. But because he is a “chap” with the right “pedigree”, the band played on. The same can be said for the Board. And his replacement has equally zero chance of success either. Wrong man, wrong place, wrong time. Corporate warrior, ineffectual and unsuited.
    Campbell had neither the character nor the management skill to manage this type of Company. The frauds occurred under his watch in a small company. Will he be held liable for these losses? And what about the know it all Chairman who browbeat him into submission?
    To blame “a senior manager”, whose incompetence has been repeatedly reported over the years to the Board and whose dysfunctionality is legendary amongst suppliers and staff, in order to avoid blame for this situation, must not be allowed to happen. The Board knew there were massive problems, did nothing, and swept all under the mat.
    And I will not even start on the disgraceful diamond marketing agreement, highly prejudicial to a large portion of shareholders.
    The Board (and the Chairman and Campbell in particular) are liable under law and must be made to accept responsibility for the mess. Knuckleheads.
    This cannot be pinned on the Minister or DMR. Here the industry “legends” are to blame.
    The good news for shareholders is that these directors all have substantial assets which distressed shareholders can attach.
    I refer the new Companies Act No. 71 of 2008 (the Act), signed into law on 8 April 2009 and which became effective on 1 May 2011.
    Reckless trading
    Reckless trading and conducting the company’s business with the intention of defrauding creditors are dealt with in the new Act.
    Section 22(1) states that a company must not carry on its business recklessly, with gross negligence, with intent to defraud any person, or for any fraudulent purpose.
    Section 77(3)(b) states that any director of a company is liable for any loss, damages or costs sustained by the company as a direct or indirect consequence of the director:
    •having acquiesced to the carrying on of the company’s business despite knowing
    that it was being conducted in a manner prohibited by section 22(1) of the Act; or
    •being party to an act or omission by the company despite knowing that the act or omission was calculated to defraud a company creditor, employee or shareholder, or had another fraudulent purpose.
    Consequently a director would have a duty to pass a resolution for a company’s business rescue or alternatively, resolve to wind up or liquidate the company as soon as he or she becomes knowingly aware that the company is either financially distressed or is trading in insolvent circumstances (both factually, in that its liabilities exceed its assets, or commercially, in that it cannot pay its debts to creditors as and when they fall due).
    Good luck, knuckleheads.

  2. The warning signs where there some years ago, but it fell on deaf ears. Sounds like an “old boys club”

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