Derek Cohen, the receiver of the Orthotouch investment scheme, has resigned citing among other reasons a “potential risk” to himself and his family due to campaigns waged by “certain investor” groups.
This step may have far-reaching implications for the 18 000 Orthotouch investors and will blur the current uncertain situation related to interest payments to investors and the various legal challenges against property magnate Nic Georgiou and Orthotouch even further.
“It appears that there is a potential risk to my family and myself as a result of the unfair and inaccurate character assassination and vilification campaigns by certain investor groups, which may have caused aggression by certain of their members towards me. I know this is hearsay, but I cannot afford to take any risk in this regard,” Cohen said without identifying the investor groups.
He did add that “for example, one group made a statement to the effect that I had stolen the investors’ funds placed in a trust. Not only is it patently untrue but inflammatory. I have been advised that this constitutes a potential risk to me and my family because one doesn’t have to be Einstein to assess the potential risks.”
Moneyweb put questions to Georgiou regarding Cohen’s resignation but did not receive a response.
Cohen also stated that his office was broken into on Tuesday night.
The resignation follows several turbulent months and escalated tension. It began when Georgiou withdrew his appeal application in the Supreme Court of Appeal in May against several harsh judgments against him. This paved the way for the Highveld Syndication Action Group (HSAG) to proceed with its application for a class action certification and the rescission of the Scheme of Arrangement.
Advocate Louis Bolt also applied for the liquidation of Zephan, the underwriter of the scheme responsible for the monthly interest payments, after winning several judgments against Georgiou on behalf of individual clients.
Zephan then announced the suspension of monthly interest payments to investors who support any of the legal challenges. This decision was made without any apparent consultation with Cohen.
Cohen, as the receiver, was tasked with ensuring that all payments to investors were made in terms of scheme conditions, intervened and demanded that the interest due to these investors be paid into an independent trust account under his control to ensure continued compliance of the scheme conditions.
However, things took a turn for the worse last week when Cohen became aware that the interest payments to around 4 500 investors who did not complete an official form circulated by Zephan to indicate whether they support for the legal actions or not, were withheld.
These investors are nearly half of the approximately 11 000 investors who are entitled to monthly interest payments.
Cohen then instructed his legal team to apply for a court order to compel Zephan to adhere to the scheme’s payment conditions.
Impossible to implement
In response to Moneyweb’s questions, Cohen described how these developments created an untenable situation. “It is impossible to implement the scheme when, on the one hand, the financial proposer is reluctant to pay monthly interest to those who are litigating against the scheme or parties to the scheme and, on the other hand, the litigation continues ad infinitum. This created an atmosphere, which does not allow the receiver to implement the scheme per the agreement. I cannot condone or agree with the decision by Zephan to withhold the July interest payment of 4 500 investors arbitrarily.”
Cohen said the parties to the scheme of arrangement will now have to nominate and appoint a new receiver. It is not certain how long this process will take.
Neither Jacques Theron of Theron and Partners, representing the HSAG, nor Advocate Louis Bolt were formally informed of Cohen’s resignation. Cohen will be distributing a circular to investors in this regard soon.
Georgiou’s letter to investors
Following the publication of this article, Moneyweb was made aware that Georgiou sent a letter to some investors. The letter, sent on a Zephan letterhead, states:
“Pursuant to enquiries received of non-payment of interest, we investigated the matter and certain Investors weren’t paid.
“Steps are being taken to address the situation and payment will be forthcoming shortly.
We thank you for your patience and understanding.