BHI Trust: What happened, and what’s next?

‘Every investor who has a claim against the trust should come forward and compile their claim pretty much as quickly as possible’: Gareth Cremen, partner, Cox Yeats.

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JIMMY MOYAHA: I’m joined on the line by Gareth Cremen, who is a partner and business rescue specialist at Cox Yeats. Good evening, Gareth. Thanks so much for taking the time. I want to look at the BHI Trust case or scandal or scenario that has been unfolding for quite some time. Can you give us a quick snapshot summary of what happened, how this came to light, and where it all went wrong?

GARETH CREMEN: From what we understand in the marketplace from a number of big investors who invested in BHI Trust, the trust had taken around R3 billion from various investors and the money is no longer there. We understand that [trustee] Craig Warriner handed himself over to the authorities.

Read: Craig Warriner of BHI Trust surrenders to police for alleged fraud

Pursuant to all of that, Cawood Attorneys brought a sequestration application which was heard last week in the high court, and the trust was sequestrated last week. From what we understand the liquidators or trustees actually have now been appointed; Gert de Wet from Kaap Vaal Trust has been appointed as a trustee of the trust.

JIMMY MOYAHA: Gareth, when you say ‘sequestrated’, from a non-legal context, how do we break that down in simple terms? There was money, it went into the BHI Trust’s account. The money’s no longer there, and now the trust has said: ‘We’re broke. We can therefore file for sequestration or liquidation.’ How does that process work?

GARETH CREMEN: From the trust perspective basically the liability has exceeded its assets, committed an act of insolvency. The money was no longer there. It could’ve done a number of things.

The trustees themselves could have applied to sequestrate the trust, bearing in mind that with private individuals you sequestrate an individual, and you liquidate a company.

With a trust, because the trust is controlled by trustees, you sequestrate the trust. And that was the process which was embarked upon.

That was where Cawood Attorneys – which had a claim, from what we understand, of approximately R50 million, brought the sequestration application. The trust was sequestrated last week, basically bringing the end of life to a trust. So the trust ceased to exist upon the date of the order being granted over there.

JIMMY MOYAHA: So Cawood in this case would’ve been an investor who would have had R50 million sitting with the BHI.

GARETH CREMEN: Well, from the media articles – I haven’t seen the court papers according to the affidavit that he would’ve filed setting up his cause of action and he would’ve set out his exposure – it appears as if he had invested a client’s funds. And that’s into BHI Trust somewhere along those lines. One would have to have a look at his founding affidavit in more detail to determine the level of exposure, where the funding came from and what it was for.

Listen: BHI Trust: Thousands of investors at risk

JIMMY MOYAHA: Gareth, let’s look at the establishment of this. Obviously we’re dealing with areas of fraud – investment fraud and that sort of thing. What are the typical consequences and ramifications of such a scenario, whether for the trust or for the trustee administering the trust? Where do we stand legally, now that we know what we know about Craig having handed himself over to the police?

GARETH CREMEN: Well, I don’t think we know everything yet about BHI Trust. I think that will sort of unfold itself through the insolvency proceedings as they unfold.

From what we know, if you do a simple search on BHI Trust and Craig Warriner, not much is known about him and not much is known about the trust. We’ve seen that the Financial Sector Conduct Authority, the FSCA, has taken an issue with them and they’re busy investigating the trust in terms of investments. It doesn’t appear as if they were regulated or whether they were registered with the appropriate authorities.

So there will be a series of criminal proceedings launched against Craig Warriner, I have no doubt, by various parties.

Every investor who has a claim against the trust should come forward and compile their claim pretty much as quickly as possible, waiting for the first meeting of creditors to be convened and to either vote out to the existing trustees once they are in there, or alternatively vote in a new set of trustees to do an investigation.

So it’s important that the creditors get together, rally together, and get their claims approved.

JIMMY MOYAHA: Gareth, you mentioned something around the news about the trust still coming to light. To that point we actually got an update from the trust, or on the state of the bank account, rather. It seems as though the Nedbank bank account currently has only R4 785 164.96 – so just under R4.8 million of the R3 billion that was supposedly taken from clients.

What are the clients’ chances of recovering funds in this case? Obviously, if we are to look at this, similar to a scenario like the FTX liquidation in the US, as more monies come out of different accounts it does improve investors’ chances of recovering their monies.

But at this stage do we know what the odds are and what it looks like for investors who were on the receiving end of this?

GARETH CREMEN: Typically in insolvency proceedings creditors will end up getting a compromise. There may be a risk of a contribution generally.

If there’s R4 million in the account there might be a dividend. And I’ll say ‘might’ – it’s not going to be a great dividend. You’re certainly going to get cents in the rand over here.

But the one important thing is for creditors to get together, lobby together, get the right trustees in there or support the existing trustees – whichever the case may be – and convene what is known as an insolvency inquiry into the affairs of the company.

Now, when you have a look at the bank statement, typically you find in these sorts of scenarios that investors will not ordinarily have paid, for example, into a Nedbank account.



There might have been a number of accounts.

So it’s important that you get the right forensic team appointed almost immediately – for them to do a flow of funds analysis, analyse the bank statements, do a lifestyle audit on the trustees, and determine where the money went.

If the money flowed cross-border, that’s where you need to engage with the South African Reserve Bank through the trustees to determine where the money went, because they would keep a record of the inward and the outward flows of funds at any point in time.

But the importance is that you need to move quickly and swiftly in order to preserve assets; that’s an important element and aspect. So creditors should be getting together and they should be lobbying together over here quite quickly.

JIMMY MOYAHA: Where did the creditors or investors in this case go wrong in terms of due diligence? What should investors be doing from a due diligence point of view to avoid being caught in these sorts of scams?

GARETH CREMEN: The difficulty over here is you need to look at what paperwork was given to them at the time. But hindsight is an exact science. You need to look at, one, whether or not the company is accredited, whether or not the relevant appropriate licences are in place, whether they’re well-known characters, etc. And if it’s too good to be true, it generally is.

I think there might have been a lot of red herrings in that, and a lot of warning signs. But ultimately investors will have to look at the investor pack, the information that they were given at the time.

More often than not, the warning signs were there, I can guarantee. But it’s something which the creditors will have to have a look at. But usually stick to the reputable crowd.

JIMMY MOYAHA: This is undoubtedly why the FSCA is getting involved, because any time you are dealing with client funds you do need to be regulated correctly by the FSCA. As you rightly mentioned, Gareth, there probably is no record of BHI having held a financial services licence issued by the FSCA.

Read: FSCA investigates BHI Trust and Craig Warriner

Can we just take a look at where the legal steps are from here on going out? You touched on a couple of them earlier, saying that some of the processes need to be followed. Applications still need to be lodged in the form of investors coming through and notifying the relevant authorities about their potential exposure.

Is there a timeline to this? Do they have to do this by a certain date and are there conditions from the court?

GARETH CREMEN: No, they don’t. They can prove claims at a later stage if they want to.

But the most important meeting is the first meeting of creditors. It gives creditors the opportunity to vote in an additional trustee or vote in a complete new trustee at the first meeting.

So it gives them an opportunity to at least have a say as to who they would want to have appointed. And that’s an important one, because it’s a timing perspective.

So they’ll just have to keep record of when the adverts go out in terms of the Government Gazette, when the first meeting will be convened, and creditors will have to take it from that point of view. There’s a short time period on that.

But if they miss their time period, that means that they live with the current trustee that has then been appointed, and they can prove their claim at any point in time prior to the liquidation and distribution account. Even after it, if there’s a second account, they can prove it later on down the line. But there generally are time bars. It depends.

JIMMY MOYAHA: What penalties could Mr Warriner be in for – if we were to speculate? Obviously we’re speculating here without having all of the information, but just from a consequence point of view for those considering this sort of business venture in future.

GARETH CREMEN: Look, I think certainly from his side fraud charges would be levied against him. Whether they stand up is a question at this point in time. One needs to look at all the documentation. But I think there certainly will be criminal proceedings to be launched against him somewhere down the line, and there will be consequences flowing from his actions.

There is more than one charge to be formulated, I have no doubt.

JIMMY MOYAHA: Well, we’ll have to wait and see as that story unfolds. Hopefully we get some colour and more clarity around what this all means for shareholders and investors and creditors who were exposed to the BHI business, and what they can hope to recover.

We’ll have to leave it at that. Thanks so much, Gareth. That’s Gareth Cremen who is a partner and a business rescue specialist at Cox Yeats, giving us his thoughts on BHI Trust’s legal woes as they unfold.

Harry Byrne

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