Irish businessman denies attempt to divert surplus funds from South African company
|||Cape Town - Irish businessman Niall Mellon and a group of associates this week firmly seized control of the SA-registered charity bearing his name, in the latest twist in a saga which last month had SA directors of the section 21 Mellon Housing Initiative launching an application in the Western Cape High Court to have the company placed under protective curatorship.
In a virtual orgy of corporate bloodletting following the dismissal of the application on September 14, Mellon and a group of Irish associates – as controlling members of the Niall Mellon Township Trust, the Irish-registered parent charity of NMI – appointed themselves directors of the SA entity at a board meeting convened the same day. They also signed up as a new director Mellon’s business partner in commercial ventures in SA, ANC parliamentarian Stone Sizani.
At the same meeting, the new board registered its strong dissatisfaction with the SA directors of the company, who had brought the action against Mellon and his fellows on the Irish Trust. Particular invective was directed against the company’s chief executive, Jim Maasch – who, ironically, was chairing the meeting ex officio.
At a subsequent meeting the next week, Maasch and fellow executive director Mark Johnston were suspended with full pay, pending “forensic” investigations into their launching the application.
While it was indicated the disciplinary process was to be independent, it was to be co-ordinated by Mellon’s close associate, Irish barrister Gavin Bonnar – who led the attack on Maasch in the September 14 meeting, according to a verbatim transcript in the possession of Independent Newspapers.
Among other issues highlighted around the suspension is that around R450 000 of company money was used to bring the application against its founder to court.
It also emerged from a verbatim record of the September 14 company board meeting that the founding documentation for the company and its member trustees was being rewritten.
The immediate force of these changes – those to the Memorandum of Incorporation for Members (as opposed to the company’s directors) – was felt last week when engineer Nolan Marsh, the sole SA member of the company, who had sided with the board in bringing the application, resigned.
Weekend Argus understands the decision was taken in light of a new provision for dismissing members on the strength of a 61 percent vote, and his expectation that the power was to be used to remove him.
At the heart of the dispute that has torn the highly regarded housing initiative apart is a battle for control over donor funds accumulated by both the SA and the Irish entities connected with the initiative.
In the SA accounts of the company, there lies a substantial surplus of around R80 million, most of it derived from government subsidies on the 20 000 houses the charity has built around the country since its launch in 2006.
Meanwhile, Mellon is under increasing financial pressure owing to the meltdown of the Irish economy, and his construction empire is currently under administration.
The R80m remains under the control of the SA-registered company – and, until their suspension, under signature of directors Maasch and Johnston.
The money is also subject to stringent limitations, flowing from the company’s constitution and its status with the Treasury and the SA Revenue Service as a charity registered with the Department of Social Development, as Mellon learned from two legal opinions he commissioned.
The first of these was delivered by auditors BDO in 2011, and the second from Cape Town attorney Jacques Louw, who has subsequently been dismissed as the company’s lawyer.
At issue was whether it would be lawful to extract surplus funds from the SA entity, using them to fund new Mellon initiatives in the Republic of Congo. The answer from both was a resounding “no”.
While BDO focused on the fiscal responsibilities of an untaxed charity, the nub of Louw’s argument was that, in terms of the company’s constitution, the ultimate beneficiaries of the project were SA’s poor and homeless. Thus, monies accumulated by the company ultimately belonged to the SA fiscus.
Responding to queries from the Weekend Argus, Mellon said the inquiry was commissioned for philanthropic reasons after a devastating explosion in an ammunition depot in Brazzaville early this year left thousands homeless.
“We asked for an independent legal opinion on whether the Mellon Housing Initiative… surplus funds could be used to build charity housing in Congo. An initial legal opinion came back that the funds should be kept for charitable use within SA. We immediately accepted that advice, and that was the end of that line of inquiry.”
The earlier BDO legal opinion – commissioned nearly a year before the explosion – was, however, not referred to in Mellon’s response. At the time, a hostel for homeless youths was on the table, although this project appears to have been dropped in favour of the construction of 100 houses, at an average cost of around R350 000 per unit.
At the same time, on the back of Irish initiatives to build trade links with the kleptocratic Sassou Nguesso government, Mellon is understood to have established business interests in the country, while at the same time pursuing farming initiatives.
Meanwhile, Mellon confirmed that significant proposed changes had been introduced to the company’s constitution and were currently under consideration. He insisted there was no intention to move funds outside SA.
Faced with the Louw advice, Mellon explained: “We decided it was necessary to update our original constitution of [the] Mellon Housing Initiative and to broaden our South African constitution to permit us to... help [a] host of other good causes within South Africa. We have now presented an updated constitution to the members of MHI, which will permit the Mellon Housing Initiative to broaden its scope of help to other South African worthy causes, such as community buildings, care centres, educational support and some health areas, as well as housing.
“It is at this stage envisaged that all of the MHI surplus funds currently accumulated will be used for these purposes within South Africa.”
While SA critics of the new direction taken by the company remain unconvinced of Mellon’s good intentions, they also question the handling of finances at the Irish end of the operation.
According to the most recent financial statements, from December 2011, Mellon’s Irish-registered Mellon Township Limited holds assets to the value of e3.5 million (about R35m), money collected from donors to provide “quality social housing for the impoverished communities in the townships of South Africa”.
Since 2009, however – beyond the actual costs associated with the week-long annual building blitzes – that money has not been making its way to SA in furtherance of those objectives, and has instead continued to be held in Irish accounts. Nor does it appear likely that it will be reserved for the purposes as stated above.
“Every board member of MHI has said that funds are no longer required from our sister charity NMTT,” Mellon said. “When I originally came to South Africa, the subsidy was only R11 000, and it was not enough to build a decent home. That’s why I gave help. Our government [SA] is now putting up all the funds necessary to build a decent home, and that is the sole reason that ongoing support from our sister charity in Ireland is no longer required.”
Moreover, the situation in Ireland was more flexible than in SA, he said.
“We received similar advice [similar to the Louw opinion] from our professional advisers in Ireland whether Irish-based Niall Mellon Township Trust surplus funds could be used in Congo, and the opinion received was ‘yes’, as the broader constitution of NMTT permitted funds to be used anywhere in Africa for housing-related purposes.”
In addition, Mellon said, “a substantial part of the surplus funds accumulated were specifically originally donated for use anywhere in Africa by the original donors”, and “no update of the constitution was required”.
Earlier this year, Mellon announced that the 2012 building blitz would be the last of its kind in SA.
Exactly how the company will operate thereafter will be up to the newly established board to decide – and the government to approve or disapprove.
Mellon reponds:
In an e-mail responding to a series of questions, Niall Mellon expressed disquiet saying:
… given the slant of your questions and the possible inferences within, I am very concerned about the direction your article seems to be taking. I am giving a reply to you in an effort to ensure that you form a more balanced article.
“I must caution you that I will be seeking exemplary damages in multiple jurisdictions if you try and create a false impression in any way [that] my behaviour or actions… have been anything less than 100 percent bona fide and proper…
“I am specifically putting you on legal notice both personally and professionally that I will be seeking major financial damages from you and your employer if your article infers even the slightest act of impropriety by myself at any time, as nothing could be further from the truth.”
Mellon also demanded that “my replies are used in full, or I am expressly forbidding you or your newspaper to use any of my quotes in isolation. This is very important to me and a precondition of my reply.
“If it is a case that my replies are too extensive for you to put in your article, then I would be willing to consider a smaller version being used, only if I am given an advance copy of your article to approve or make additional comments on, in advance of publication.
l Mellon’s full response runs to well over 1 000 words. It has been used as comprehensively as possible where relevant to issues raised by the article.
This story first appeared in the Weekend Argus Sunday edition.