EOH files R1.7 billion lawsuit against former CEO Asher Bohbot Mudiwa Gavaza BL Premium | Business Live
Question:
EOH files R1.7 billion lawsuit against former CEO Asher Bohbot Mudiwa Gavaza BL Premium | Business Live | 28 June 2021 The JSE-listed IT services company is suing its former CEO and several other top executives for billions of rand. EOH has filed a R1.7 billion lawsuit against co-founder and former boss Asher Bohbot, alleging he failed to carry out his fiduciary duties and created an enabling environment for corruption and financial irresponsibility. The lawsuit, filed in the high court in Johannesburg, comes about three years after EOH, which provides technology services, revealed underhanded dealings with its biggest client, the government, forcing the one-time investor favourite into taking billions of rand in write down charges and triggering a selling frenzy in its shares. ”The defendant’s failure to discharge his duties created an enabling environment for corruption, wrong-doing and financial irresponsibility,” EOH said in court papers. EOH, which is on the comeback trail after bringing in Stephen van Coller as CEO to clean up its image and fix its balance sheet, is also going after former CFO John King for a similar amount. The duo are further accused of tarnishing the company’s reputation with governance failures that ensnared EOH in the state capture project and led to the loss of a lucrative supply contract with Microsoft. EOH has also applied to have Bohbot declared a delinquent director, disqualifying him from serving as a director in SA for at least seven years. Other former senior executives in the company’s legal crosshairs include former public sector head Jehan Mackay, who has been slapped with a R1.5 billion suit for alleged payments to third parties for bogus work, and former EOH International head Ebrahim Laher, who faces a R1.58 billion lawsuit for allegedly abusing his position for personal gain and negligence. The lawsuits mark the latest episode in one of the country’s biggest corporate scandals, which shocked investors who had rallied behind EOH’s ascent from a small IT group in the early 2000s to a must-have in fund managers’ portfolios. The company ran into trouble three years ago when allegations of dodgy tender dealings with the government surfaced, prompting it to clear out its top management, bring in Van Coller and appoint ENSafrica to get to the bottom of the allegations. The investigation by ENSafrica found a hole of close to R1 billion in its accounts stemming from underhanded dealings with its government client, including transactions worth more than R600 million with no evidence of valid contracts being in place or for which no work was done, as well as R90 million of loans written down and overbilling of about R180 million.
The above extract notes the financial wrong-doing uncovered by ENSafrica during the course of its investigation. ENSAfrica would naturally examine the work done by the external auditors of EOH amongst others.
Discuss the role that the EOH auditors should have played in preventing this financial wrong-doing.
The CEO of EOH is alleged to have breached his fiduciary duties.
Explain what fiduciary duties are and the consequences for EOH of Bohbot’s breach of those duties.
Discuss whether fiduciary duties are different for executive versus non-executive directors. Motivate your answer.
Strategic Management An Integrated Approach
ISBN: 978-1111825843
10th edition
Authors: Charles W. L. Hill, Gareth R. Jones