Former investors in the failed Highveld Syndication (HS) schemes will in March next year be presented with a final settlement offer that will offer them shares in the Accelerate Property Fund as full and final settlement of their claims.
Jacques du Toit of Du Toit Business Rescue Practice, the business rescue practitioner of Orthotouch and Zephan, said at the meeting that if investors and other creditors reject the offer, he will put the two companies into liquidation. However, based on the information Du Toit disclosed at the meeting, investors may only receive a fraction of their original investments. According to Moneyweb’s calculations, it could be as little as 3.3%.
Accelerate is a listed company run by Georgiou’s son Michael, who is also the largest shareholder in the company.
Around 100 investors attended the meeting in Johannesburg where Du Toit said the business rescue process will consolidate the remaining assets of Zephan and the HS companies, and that these assets will be available for distribution to the investors and creditors of Orthotouch and Zephan.
He said a provisional valuation of the properties remaining in Zephan amounts to around R130 million, but he did not provide a valuation for the three properties that remain in HS 16 and HS 18.
Du Toit added that Georgiou and Hans Klopper, the business rescue practitioner of the HS companies and a former director of Orthotouch, agreed to the grouping of these assets.
The peculiar case of the Picvest billions (Part 1) (Background)
The peculiar case of the Picvest billions (Part 2) (Background)
The peculiar case of the Picvest billions (Part 3) (Overvaluation of properties)
The peculiar case of the Picvest billions (Part 4) (Property transactions prior to HS companies being put into business rescue)
The peculiar case of the Picvest billions (Part 5) (Disposal of properties contradicts the intent of the business rescue plan)
The peculiar case of the Picvest billions: Part 6 (The disposal of properties to Accelerate)
However, Du Toit said a “third party” indicated it will “come to the party” and offer Accelerate shares to investors and creditors “for full and final settlement of their claims”. The exact details of the offer will form part of the business rescue plan which will be published on March 31 next year.
However, Du Toit said the offer would consist of approximately 123 million Accelerate shares, although the final number is to be confirmed. “The Accelerate shares will form the ‘pot’ available to be split pro rata among creditors relative to their claims. So, if your claim is 10% of the total claims, you will receive 10% of the pot. It the claim is 1%, you will get 1%,” he said.
In return for the offer, the third party will take ownership of the remaining Zephan and HS properties.
Du Toit added that although Accelerate shares are currently trading at R1.70 a share, the net asset value (NAV), as “calculated by the JSE”, is R7.99 a share.
Liabilities of Orthotouch and Zephan
Du Toit also revealed that according to the latest calculations, Orthotouch’s total liability to investors and creditors is around R3.9 billion, which is significantly lower than the amount of R5.4 billion Georgiou disclosed in his submission to the Companies and Intellectual Properties Commission (CIPC). He did not provide an updated number of the liabilities of Zephan, which was listed as R2.4 billion in the CIPC notice.
Collectively, and with the current available information, the total claims against Orthotouch and Zephan are R6.3 billion.
Du Toit stressed that these claims still need to be verified and all creditors need to submit proof of their claims as part of the process.
What can investors expect to receive?
According to the information and estimates Du Toit disclosed at the meeting, and depending on the prevailing Accelerate share price, investors can realistically expect to receive around 3.3% of their original HS investments. This calculation is based on the disclosed liabilities of R6.3 billion and the value of the 123 million Accelerate shares that will be available for pro rata payments to investors and creditors.
Accelerate’s shares are currently trading on the JSE at R1.70 a share, which means the market value of the 123 million shares is R210 million. If this is the total ‘pot’ to be paid pro rata to investors and creditors with claims of R6.3 billion, investors will only receive around 3.3% of their original HS investments.
This distribution may change significantly if the share price of Accelerate changes and/or the actual claims against Orthotouch and Zephan are adjusted. The exact details will only be included in the final business rescue plan.
Only two possible ‘third party’ candidates
The identity of the third party was not disclosed during the meeting, but Du Toit and Nic Georgiou’s lawyer, Mario Kyriacou, made it clear that it is not Accelerate.
However, a cursory glance at Accelerate’s shareholder register reveals that only two parties own more than 123 million shares and would be able to offer such an amount.
They are Michael Georgiou, Nic Georgiou’s son and CEO of Accelerate, and Coronation Fund Managers. The most likely candidate to offer the shares is therefore Michael Georgiou, who owns 293 million shares, or 30% of the company.
During the meeting, a creditors’ committee was appointed to represent all investors and creditors during the business rescue process. The elected committee members are Dr Gert Holtzhauzen, Don Dawson, JP Smit, Bethuel Kgobane and Helgard Hancke.
Hancke is a former member of the Highveld Syndication Action Group, which is in the process of instituting a class action against Georgiou and Orthotouch. He later jumped ship and is now marketing a similar Accelerate share offer to investors.
Several investors raised objections against Hancke’s appointment to the committee.
Du Toit then put his nomination to a vote but too few investors voted against his inclusion. Hancke’s appointment was therefore confirmed.
Several investors also questioned Du Toit’s independence as business rescue practitioner.
One investor claimed Du Toit and Klopper were “partners”, as they were joint business rescue practitioners in the business rescue process of the Platinum Group in 2015. Du Toit acknowledged that he worked with Klopper in the past, but strongly denied that they were partners and rejected that it influenced his independence.
“I became involved after I was approached by three parties, an attorney in Bloemfontein, a property company called National Real Estate and Klopper. I am totally independent. My independence is based on the fact that I have no interest with Nic Georgiou, Orthotouch or Zephan. I have no knowledge of the businesses and that makes me independent.”
Investigation into possible looting of assets
In response to a question of whether he will request a Section 417 investigation into the possible looting of assets by directors and other parties prior to the commencement of the business rescue process, Du Toit said a business rescue practitioner does not possess the same authority as a liquidator in requesting such investigations.
“What we can do is go to court and get a court order to get the authority to investigate such matters, but someone needs to foot the legal bill. The business rescue [process] is not going to foot the bill … If I start to spend millions on investigations it is not going to give you a [optimal] return.”
He invited anyone with proof of criminal conduct to present it to him.
Such an investigation may be necessary as the explicit provisions in the business rescue plan and the Section 155 Scheme of Arrangement that all properties be transferred to Orthotouch were not adhered to.
Not a single one of the 79 former HS properties was ever transferred to Orthotouch. Apart from the three remaining properties in HS 16 and HS 18, all properties were sold. This includes 42 properties valued at a total of R3.4 billion that were successfully syndicated to investors but never transferred to the HS companies. These properties were also sold to third parties.
Two individuals who have been integral in the management of Orthotouch and the HS companies were recently cited in a Section 417 report into the possible looting of assets prior to the liquidation of an unrelated company, Harrison & White. They are Klopper and corporate lawyer Connie Myburgh, also a former director of Orthotouch and the current chairman of the Nova Property Group, the rescue vehicle of the failed Sharemax scheme.
Klopper strongly denied the findings of the report. Myburgh has never responded to questions regarding the Section 417 report, although he has stated that Moneyweb did not have permission to publish the report.
Confirmation of claims
Du Toit emphasised that all investors who have claims against Orthotouch need to submit them to his office. If claims are not submitted, they will not be settled if creditors accept the Accelerate offer.
Du Toit also said that the necessary information will be sent to investors within two weeks and that if investors have not received any communication by then, they should contact his office (firstname.lastname@example.org).
SCA finds buyback agreements remain valid
In another development, a judgment released by the Supreme Court of Appeal on Friday will result in Georgiou facing claims from investors in HS 21 and HS 22 of more than R3 billion in his personal capacity.
The court dismissed Georgiou’s appeal against a previous High Court judgment which found he must honour the buyback agreement he signed with an HS 22 investor. Acting Judge Moroa Tsoka also confirmed that the buyback agreements were not affected when the HS companies were put into business rescue.
It is currently unclear how this judgment will affect the business rescue process of Orthotouch and Zephan.