JOHANNESBURG – Some 380 George residents stand to lose R150 million after investing in a platform that in turn invested into beleaguered microlender, Bridge, among other investments, as allegations that the platform contravened the Banks Act surface.
The NIFLAS Silhouette Platform (NSP), which invested R63 million into Bridge Corporate, was placed into business rescue shortly after Bridge’s own financial woes landed it in business rescue in September last year.
NIFLAS is a financial services business based in George, a popular holiday destination along the Garden Route. It is owned and managed by husband and wife team, Pieter (CEO) and Carina Strydom (executive director of financial services).
When Bridge was placed into business rescue, the annual interest rate of 19% that it was paying its more than 1 600 investors was slashed to 6% and has since dried up altogether. A recently instated compromise plan now promises to reinstate a 1%-per-annum dividend from January 2016.
NSP appears to be in large part a casualty of Bridge’s demise and, like Bridge, was mis-sold in many cases to older, return-hungry investors.
According to NSP’s business rescue practitioner, Koos van Rensburg, promoters of the NIFLAS scheme (who received commissions for attracting client capital) recruited investors who then became non-exec directors of “co-directorship companies” that were incorporated as PTY’s and received said investor funds.
This step was introduced to circumvent the Banks Act, Van Rensburg argues, in particular the prohibition on conducting the “business of a bank”, as it made investors directors of the CDCs to which their money was transferred and later redistributed to microlenders – the “borrowing entities”.
Using the money they earned from income and interest (presumably from their own lending activities), these borrowing entities then repaid NIFLAS at “extravagant rates which were not sustainable,” according to Van Rensburg.
In this way the scheme recovered its expenses and used surplus income to pay the CDC companies at interest rates higher than market-related rates. The CDC companies in turn paid this back to individual investors.
There are 78 CDC companies in total with names such as K2011106238 (PTY) LTD or Silhouette 001 through Silhouette 047.
Liquidation application filed
Alongside the investments into Bridge, Van Rensburg claims that funds were given to entities in which NIFLAS management had a direct or indirect interest, mostly property investments.
“None of these loans made any sense if one takes into account that the underlying investments of these loans were immovable property that would not generate sufficient income to pay an interest obligation of 19% per year,” according to Van Rensburg.
“These were all arms length and above board, reflected in the financial statements of the company,” counters George Nell, former Bridge business rescue practitioner and now representing NIFLAS management.
NSP invested more than R4.6 million into Cambist, a platform selling debt contracts. However, following the uncertainty surrounding emoluments attachment orders (EAO) in recent months, average monthly repayments from Cambist have fallen from R146 700 a month to R87 000, says Van Rensburg.
Considering Bridge’s dire position and the outlook for other NFS investments, Van Rensburg does not believe that there is any reasonable prospect of rescuing the company and has duly applied for its liquidation.
A group of creditors, however, plan to oppose the liquidation application. “We don’t agree with Van Rensburg on liquidating or what Strydom has done with Silhouette. We are interested only in getting investors’ money back,” chairperson of the creditors’ committee, Charlie Breed, tells Moneyweb.
Nell notes that the NFS suspended its investment activities some time ago and any repayments of loans from microlenders or realisation of assets will be used only to repay investors.
He notes that in terms of an amended business plan, which has the support of the majority of investors, a new company will be created to wind up assets over a period of time, yielding a better return for investors than a costly liquidation process.
Nell first became involved in the matter as a mediator between Van Rensburg and NIFLAS management and was later asked to represent NIFLAS “on full disclosure to investors and Van Rensburg,” he says.
A number of years ago and before launching, NSP received legal opinion from ENSAfrica to the effect that it was not in breach of any laws. According to banking and finance executive at ENSAfrica, Angela Itzikowitz, on the facts presented to ENSAfrica there was no contravention of the Banks Act or other relevant legislation.
The liquidation application is set to be heard on November 2 in the Western Cape High Court, says Nell.
It’s impossible to know how many other platforms like the NSP pooled investor funds and invested in the likes of Bridge and Cambist, but this does suggest that there may be many more individuals affected by the collapse of these investment opportunities than previously suspected.