Business Practices Committee Report 59 XB National Care Society 3. Preliminary investigation

 

 

XB was incorporated against the background of the liquidation of the following companies:

 

The director of XB was Mr M M Nxumalo (Nxumalo). XB runs a funeral scheme and accepts individuals and burial stokvels as members. The benefits of the "Basic Scheme" at R25 per month, are the following:

 

Funeral cover

Member: R7 000.

Spouse(s): R5 000.

Children:

Ages 14 to 24: R3 000.

Ages 06 to 13: R2 000.

Ages 00 to 05: R1 000.

 

The number of spouses is limited to three and the number of children is limited to 15 per spouse. Mr Nxumalo claimed that the policies issued by XB were underwritten by Safrican Insurance Company Ltd (Safrican).

 

A letter dated 9 October 1995 from Safrican to Nxumalo stated that "Safrican had not been a risk regarding XB clients from 1 September 1995 and would not entertain any claims arising from XB members". Investigating officers of the Committee (officials) met with Mr Nxumalo at his offices in Sheffield House, Johannesburg at 13:30 on 29 July 1996. When confronted with Safrican's letter, Nxumalo immediately called Safrican and asked to speak to a Mr Mbili. Mr Mbili was unavailable. Nxumalo alleged that the letter in question referred to the XB Peoples Funeral Services (Pty) Ltd and not to XB National Care Society (Pty) Ltd. Nxumalo explained the history of XB and the operations of stokvels at some length and produced a number of paid cheques to prove that XB had paid for funerals. The drawer of these cheques appeared to be XB Guards. Nxumalo explained that XB Guards was a security business which he owned.

 

Nxumalo claimed that he could not afford a bookkeeper. The number of members of XB at the end of June 1996 was 857. Nxumalo could not provide all the information requested and suggested that the officials talk to his general manager, Lindie Nxumalo. She was to be available on 7 August 1996. Lindie Nxumalo is a daughter of Nxumalo.

 

Officials visited XB on 7 August 1996 and asked Lindie Nxumalo to produce various books and documents. Lindie Nxumalo left the office to get the documents required and stayed away from lengthy periods. Upon her return it invariably happened that

the books or documents requested were unavailable or incomplete. At times one Gugu Nxumalo was also requested to find the documents. Lindie Nxumalo claimed that she "works with the payments". At other times one Sipho Shabane was requested to provide answers or obtain documents. It was alleged that Sipho Shabane "works with the receipts and bank deposits".

The accounting system of XB appeared to be in total shambles.

 

The "Executive Director", one Thembi Mauke left in the middle of March 1996. She was followed up by one Rose Mhlanga who also left the employ of XB during May 1996. The officials required the bank statement for May 1996, only two pages could be produced. It was said that the reason why the bank statements could not be presented was that XB moved from the Cine Centre to its present location and that a number of documents went missing in the process.

 

The counterfoils of a number of cheques seemed to point to irregular payments. For example, the wording on the counterfoil of cheque 7 dated 16 April 1996 for R577 read "Ticket Xolani", cheque 12 dated 24 April 1996 for R695 read "Gown" and cheque 21 dated 30 April for R1 992 read "La Boutique Suite". Gugu Nxumalo could not explain these transactions or produce relevant invoices. These transactions took place "before her time" as she was appointed at the beginning of May 1996. She could, however, also not produce an invoice to support cheque 25 dated towards the middle of May 1996 for R1 200 towards "Cash Repairs".

It appeared that bank reconciliations were never done by Gugu Nxumalo or her predecessors. Sipho Shabane could not produce any documents to indicate that the amounts received corresponded with the amounts banked. The "Reconciliations" were allegedly at his home because he was working on them and they did not "know the investigators would require them". There was evidence that some of the monies received from XB members were paid into the account of XB Guards, allegedly on the instructions of one Thembi Mauke, who had also left the company.

 

Some funeral costs were paid by XB Guards. According to Lindi Nxumalo the salaries of the personnel of XB National Care Society (Pty) Ltd was paid by XB Guards. Safrican sent the Committee a fax on 25 July 1996 which read as follows:

...."We do not underwrite XB National Care Society. It appears that we are looking at this business but have yet made a decision about it".

 

On 24 October 1996 Nxumalo held discussions with the Committee and agreed that he will furnish the Committee with relevant accountancy books and other documents of XB. These documents were not submitted because according to Nxumalo the enquiry made into the affairs of XB was a sequel to complaints from certain quarters and that the complaints had to be addressed. XB was therefore obliged to resolve and satisfy the Committee on the listed complaints. Furthermore his legal Counsellor demanded copies of all documentation in possession of the Committee relating to complaints that had been brought against XB by OSEO.

 

On 17 May 1997 officials again visited the offices of XB and met with Mr Nxumalo. He explained the business operation of XB. He claims that XB was operated on the concept of a stokvel. When XB was formed, premiums collected were insufficient to cover the unexpected high funeral costs which Nxumalo estimated to be R4 000 per funeral. On average there were about four funerals per month. He was morally therefore compelled to assist in whatever manner by advancing money from the other business (XB Guards) to XB. He remarked that the South African Police Services had enquired about the activities of XB. Consequently his legal Counsellor had advised him to distance himself from all activities of XB and as such it was dormant.

 

On the 2nd of June 1997 the officials received a report from Nxumalo dealing with the complaint against XB. In it he stated that XB Peoples Society (Pty) Ltd was placed in liquidation by an order of the Supreme Court of SA, dated 30 September 1995, as a result of an application brought by the Financial Services Board. Messrs B.S. Cooper and B.B. Nicc were appointed joint liquidators of the company and had carried out the liquidation.

 

Soon after the closure of XB People Funeral Services (Pty) Ltd during August 1995, the liquidators requested that he (Nxumalo), should meet the affiliated societies and some individual members with a view to informing them about the closure of the company. The people were duly met and addressed on the issue of the closure of the company. The community burial stokvels then decided to contribute whatever they could to assist each other in times of death of one of its members. The same group of societies had requested Nxumalo to register a company for them in order to start afresh with their burial work. XB National Care Society (Pty) Ltd was subsequently registered.

 

Capitalisation of the company was the next important matter that had to be tackled. The members of the different intended burial societies did not raise the money and the company could thus not be activated. Instead the burial societies continued to stand together and assist each other to bury any member with the funds they collected monthly for burial purposes.

 

The burial societies asked Nxumalo to approach various companies to underwrite their funeral benefits, so that they could again operate their registered company, namely XB. It took almost the rest of 1996 to get an underwriter that suited their scheme and monthly contributions. Rentmeester Assurance Limited (Rentmeester) agreed to underwrite and gave them their rules of operating the scheme. Mr Nxumalo stated that he at all times acted merely in an advisory capacity and his only intention was to assist burial societies who asked him for advice.

 

By the time XB contracted with the underwriter there was no finance readily available to activate the company "National Care Society (Pty) Ltd", There was also no money to repay XB Guards that had funded most of the funerals in the past when members' monthly collections could not cover all the burials. XB Guards did not intend acting as a burial society. It merely assisted by funding funerals on humanitarian grounds. Those people that were not assisted by XB Guards with funeral benefits are still waiting for re-imbursement by the committees of the different societies. Similarly XB Guards that ran an account specifically to assist the societies, is still waiting for re-imbursement to cover their shortfall at the bank. No monies were taken from members of the society other than to assist with burials.

 

Nxumalo contended that burial societies and stokvels were declared to be a traditionally Black phenomenon through which provisions are made for unexpected death. Neighbours, friends, relatives and other close social groups come together and decide on monthly contributions by each member towards a fund to provide for funerals of members or relatives. The benefits are clearly defined for various age groups of the dependants. This being the traditional way of providing for their needs, is a tradition found and practised in every town or township and does not involve the use of underwriters and brokers.

 

XB Guards decided, after considering all the costs, and the demands made on its staff to stop assisting the societies at that stage and to close down the activities of XB, leaving it to the societies concerned to deal with the company and to look after its own affairs. It was further agreed by the chairpersons of the societies that they would repay any money owed to XB Guards and that they would deal with any of their members whose funerals had not been paid for.

 

He (Nxumalo) had re-iterated that he was not and did not at any stage act as a director of XB. Neither was he registered as a shareholder or director of that company in any office. Whatever he did was at the express request of the burial societies and the liquidators of the old company to which the burial societies were affiliated. This assistance was, however, rendered without prejudice and without obligation save to ensure that ordinary society members continued to receive burial assistance. There was no intention whatsoever to act in his own interest.

 

Nxumalo stated categorically that at no stage did anyone else act as an own underwriter, or a broker without an underwriter. Dealings with the groups that he assisted at the request of the liquidators has been terminated, save for the repayment of what they owed XB Guards.

 

On 19 June 1997 Rentmeester confirmed that it had agreed to underwrite XB's policies. This was to be effective from 1 September 1996. But further discussions between XB and Rentmeester to finalise membership details, including monthly contributions per member, could not be held as was envisaged. The reason was that XB never succeeded to have the scheme in operation and there was thus no business transactions that took place between the two parties.

 

On 11 July 1997 officials met with Mr Pieter Johannes du Toit, who was listed as secretary of XB. He confirmed that Nxumalo had requested him to register XB on his behalf. He was an acting secretary of the company for registration purpose and for ease of signatories only. But had transferred the shares to the new owner (Nxumalo) effectively from date of incorporation.