Maladministration allegedly a main cause of Health Squared’s ‘financial ruin’

Maladministration was allegedly one of the main causes of the “financial ruin” of South African medical scheme Health Squared, rather than just the Covid-19 pandemic, according to a provisional report by the scheme’s curator.

This was disclosed by Council for Medical Aid Schemes (CMS) Registrar Dr Sipho Kabane, in an affidavit in support of a high court application heard last week for the postponement of the winding-up hearing of the scheme.

Judge J Wright ordered that Health Squared’s liquidation application be postponed until a number of other high court applications have been finally determined, or the facts and circumstances change sufficiently to warrant the setting down of the liquidation application.

Health Squared’s management lodged an application in the High Court in Johannesburg on 18 August 2022 to liquidate the scheme and advised its members that the voluntary winding up would be effective from 1 September 2022.

However, Health Squared was subsequently placed under provisional curatorship effective from 8 September 2022, following a high court application brought by the CMS.

Curator’s report

Johannes Seoloane, a former CEO of Sanlam Health, was appointed provisional curator of Health Squared.

Kabane said it appears from Seoloane’s provisional report that Health Squared spent on average R80 million a year on administration, management and marketing fees at a time when the scheme was “bleeding members”.

He added that the term of office of the trustees of Health Squared ended in December 2021 and they were meant to call an annual general meeting (AGM) at that time.

Kabane said the trustees applied and were granted an exemption to stay in office until the end of June 2022, at which time they were meant to hold an AGM. The trustees then changed the rules of the scheme to allow them to stay on as trustees until 30 September 2022.

“This coincides with the timing of this urgent application for the winding-up of the scheme.

“It would seem the trustees are intent on seeing the scheme wound up before their term of office expires,” said Kabane.

“This also has to be viewed in light of the fact that I had advised the scheme that I intended to appoint a statutory manager to oversee the operations of the scheme and that [a] judicial manager would commence work on 1 July 2022.

“My efforts were frustrated by the scheme, and in an effort to prevent my regulatory intervention, the scheme rushed this [winding-up] application to court.”

Another concern …

Kabane said a further point of concern raised by the provisional curator is that it appears that during the month of August 2022, the trustees only made part payments to themselves and did not draw their complete fees.

“This means once the scheme is wound up, they will be the scheme’s creditors and have an influence in the choice of liquidator,” he said.

“The curator informed the court that he needs more time to look into this issue.”

Kabane added that to this end, he had brought the application for the postponement of the urgent winding-up application pending the finalisation of many high court applications and to afford the provisional curator more time to finalise his work and provide him with a report, which was due at the end of September 2022.

He said Health Squared has stated that it could survive for another six months and there is therefore no prejudice to the scheme should this application be postponed for a month.

Applications

The application for the winding up of Health Squared was set down to be heard on an urgent basis in the High Court in Johannesburg on 27 September 2022.

The CMS applied for this application to be postponed until the final determination of a number of other high court applications, including:

• The extended 30 September 2022 return date for the confirmation or discharge of the provisional appointment of a curator to take over the business of Health Squared.
• Health Squared’s application for the suspension of the order granted by Judge J Crutchfield on 8 September 2022, in terms of which a provisional curator was appointed for Health Squared.
• Health Squared’s application for leave to appeal the whole judgment and order of Judge Crutchfield that was handed down on 8 September and 20 September 2022.
• The CMS’s application for leave to appeal against the order of Judge AJ Swanepoel on 23 September 2022.

Judge Swanepoel extended the return date of Judge Crutchfield’s order to 30 September 2022, but also held that her order was suspended because Health Squared had filed an application for leave to appeal.

However, Kabane said Judge Swanepoel’s order is now also subject to an application for leave to appeal and has effectively been suspended.

He said this makes it necessary to postpone Health Squared’s urgent winding-up application until the question of the scheme’s legal representatives has been resolved.

This is a reference to the provisional curator terminating the mandate of Malatji & Co attorneys of record of Health Squared, who were the scheme’s attorney of record when the winding-up application was brought.

Kabane said Malatji & Co still claims to represent the interests of the scheme and persists in filing papers to the high court.

He said Malatji & Co has to date still not provided the CMS, as requested, with proof of its authority to act on behalf of Health Squared, while Lawtons Inc attorneys has filed a notice of appointment and substitution as attorneys of record for Health Squared.

In a case heard in the Gauteng South High Court on Friday, Judge Swanepoel granted the registrar of medical schemes leave to appeal against two paragraphs of his order issued on 23 September 2022 and extended the return date for Judge Crutchfield’s interim order to 1 November 2022.

One of these paragraphs relates to his order that Health Squared’s leave for appeal against the order appointing a curator automatically suspended the interim order of 8 September 2022 issued by Judge Crutchfield and that the appointed curator –Seoloane – may consequently not act for the CMS until the interim order has been finally determined.

The other paragraph relates to Judge Swanepoel’s order that the CMS take whatever steps are necessary to deliver the entire application for the appointment of a curator, the interim order, and his order on all interested parties by email by no later than noon on 26 September 2022.