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AFRICAN DAWN 2015 Annual Report

Accounting Policies continued 1.20 Significant judgements and sources of estimation uncertainty (continued) In return, Afdawn Group has agreed to waive any potential claim it may have (whether as the shareholder of Knife Capital or otherwise) to the Carried Interest (as defined in annexure C of the Transaction Agreement) and has consented to the Carried Interest being paid by Knife Capital Group to the Knife Capital vendors. The impact of this agreement is that: Lastly, in terms of the settlement agreement, Mr EA van Heerden would remain as the chief financial officer of the Group until the earlier of 31 August 2015 or when a new chief financial officer had been appointed. He subsequently agreed to remain in office until the finalization of the financial statements. As at 31 August 2015, Mr EA van Heerden became the chief executive officer of the Knife Capital Group. At the date the financial statements were issued, a new chief financial officer has not yet been appointed. Elite Two - associate (2014) and subsidiary (2015) In 2011, Elite entered into an agreement with Sandown Capital Proprietary Limited (“Sandown”). Sandown assisted Elite by introducing a R10 m facility to Elite to facilitate the growth of Elite through the special purpose vehicle (SPV), being Elite Two, that was in line with, and benefitted, the business of Elite. Elite (with the assistance of Sandown) had set up Elite Two to make short term salary-deducted personal loans – this is the main business of Elite Two and was funded by Sandown (who earned interest) and managed by Elite (who earned management fees). Elite Two was 100% owned by Sandown. Elite and Sandown were each entitled to 50% of the profits assuming that the total bad debts were 3% or less. To the extent that the bad debts exceeded 3%, Elite would forfeit an equal amount of its share of the profit. However, Elite was not exposed to any further losses. In the years ended February 2012 and February 2013, Elite Two earned a profit of R249 067 and R1 325 426 respectively. No management fees or equity accounted earnings were recognised by Elite despite the fact that Elite was entitled to half of these amounts (being a cumulative amount of R787 247). However, Elite had significant influence over Elite Two because it had the right to appoint two of the four directors, despite it holding no shares in Elite Two. In light of the fact that Elite had not previously accounted for any investment in an associate, no equity accounted earnings relating to Elite Two were recognised in 2012, 2013 and 2014. Instead, the cumulative management fee of R2 259 181 was recognised in 2014. This is therefore a material prior period error which has been retrospectively restated – refer to notes 42 and 43. In the year ended February 2014, Elite previously recognised a cumulative management fee of R2 259 181. This has now been restated to reflect R787,247 in the 2013 financial year and R1,471,934 in the 2014 financial year. In November 2014, Elite acquired all the shares in Elite Two from Sandown (refer to note 37). A thorough assessment of the requirements in IFRS 10 – Consolidated Financial Statements, and SIC 12 – Consolidation – Special Purpose Entities, revealed that Elite did not control Elite Two prior to this date. Both Sandown and Elite were exposed, or had rights, to variable returns from their involvement with Elite Two. However, on balance, Sandown had more exposure than Elite and had the ability to affect those returns through its power over the investee. Sandown therefore consolidated Elite Two until November 2014. With effect from November 2014, Elite Two has been consolidated by Elite – refer to note 37 for information on the deemed disposal of the associate and the acquisition of the subsidiary. AFRICAN DAWN 61 ANNUAL REPORT 2015 Elite Two - contingent liabilities At the time that Elite acquired 100% of Elite Two from Sandown, Sandown took over debtors with a value of R14 337 165. The claims against those debtors will be pursued in Sandown’s name. However, the costs of the legal proceedings will be shared equally by Elite and Sandown. If at least R10 million of this amount is collected, Elite will be paid a fee of 50% of the excess. However, Elite is not liable for any amount that is not collected. With respect to the legal claims no legal fees were incurred to the reporting date. Subsequent to the reporting date fees of R91,554 were incurred in relation to the collection of the debt. Litigation is in the process against debtors in Elite Two relating to the settlement of outstanding debt. The Company’s lawyers and management consider the likelihood of the action against the debtor being successful as likely, and the case should be resolved within the next two years.


AFRICAN DAWN 2015 Annual Report
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