The JSE has imposed a public censure on Delta Property Fund and a maximum fine of R7.5m due to its “failure to comply with important provisions of the Listings Requirements.”
On the 9th of December 2020, Delta Property Funded informed its shareholders that its external auditor had withdrawn its audit opinion in respect of the company’s annual financial statements for the year ended February 2020. As a result, continued reliance on the 2020 annual financial statements was no longer appropriate and Delta withdrew its 2020 annual financial statements.
On the 22nd of April 2021, Delta Property Fund reissued and restated its 2020 annual financial statements which also contained restatements to the annual financial statements for the periods ended February 2018 and February 2018 as well as its interim financial statements for the six months ended August 2019 to correct a substantial number of prior period errors in accordance with International Financial Reporting Standards (IFRS).
During 2020, Delta Property Fund initiated independent forensic investigations into practices involving governance failings and suspected wrongdoing that occurred in previous financial reporting periods.
The forensic investigations uncovered a lack of oversight mechanisms, governance failings, and wrongdoing in prior financial periods which arose during the tenure of its previous executive management resulting in irregularities; the payment of commissions by the company amounting to R43.9 million (for the 2018, 2019, and 2020 financial years) from invalid, lapsed, or no broker mandates; fraud resulting from unethical dealings; and non-disclosure of related-party transactions to the Board.
As a result, the company restated its annual financial statements for the financial periods ended February 2018 and 2019 respectively and its 2020 interims.
“The company was transparent by correcting the prior period errors and disclosing the improprieties to the market,” notes the JSE.
“The financial impact of the restatements of prior period errors in the 2019 annual financial statements were material in that loans due from subsidiaries decreased by 100%; non-current assets held for sale decreased by 97%; cash and cash equivalents increased by 229%; non-controlling interests increased by 100%; retained income decreased by 87%; lease liabilities increased by 100%; admin expenses increased by 29%; fair value of investment property decreased by 318% due to the downward valuation thereof; interest income decreased by 10%; profit for the period decreased by 219% into a loss for the period; earnings per share of 39.80 cents decreased to a loss per share of 81.59 cents per share (205%); headline earnings per share decreased by 9% ”
“Delta’s previously published financial information for the 2018 to 2020 financial periods did not comply with the IFRS and were incorrect, false, and misleading in material aspects and this incorrect information was disseminated to shareholders, the JSE, and the investing public.”
The JSE found that the company failed to comply with Paragraph 8.62(b) in respect of the previously published annual financial statements for the financial years ended February 2018, February 2019 and the 2020 annual financial statements which were not prepared in accordance with IFRS and were restated due to the numerous errors contained therein with regards to measurement and presentation; and Paragraph 8.57(a) in respect of the previously published 2020 interims which did not comply with the requirements of IFRS and were restated due to the numerous errors contained therein.
“The accuracy and reliability of financial information published by companies plays a pivotal role in maintaining a fair, efficient, and transparent market. The provisions of the Listing Requirements, which impose various important obligations on listed companies in respect of the disclosure of financial information, enhance the integrity of the market and promote investor confidence,” said the JSE.
“Consequently, the company and its directors are obliged to ensure that all financial information and reports that are published are, in all material aspects, accurate and correct. Furthermore, the investing public depends on a company’s disclosed financial information to make crucial investment decisions.”
“The JSE has considered all the relevant facts and information at its disposal in deciding on an appropriate censure and financial penalty as a result of Delta’s transgressions of the Listing Requirements which include Delta’s forensic investigations that uncovered irregular accounting and other practices; its full cooperation and assistance in the JSE’s investigation; the current economic climate; the remedial actions undertaken by the current executive management, and the interests of its shareholders, the JSE, and the investing public.”
The JSE has decided to suspend R5 million of the fine for a period of five years on condition that Delta is not found to be in breach of the provisions of the Listings Requirements pertaining to the accuracy of its financial information, financial reporting, and related disclosures during the period of suspension.
“The investigation into the conduct of individuals that presided at the company during the periods in question, and who are bound by the Listings Requirements, is ongoing.”
Read Delta Property Fund’s response here.
