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Judgment could force Nic Georgiou to pay out R2bn

Highveld Syndication Action Group also submits documents to expedite class action certification, and non-payment of interest continues.

Nic Georgiou, founder and sole executive director of property management company Orthotouch, may face more than R2 billion in civil claims from thousands of investors in two of the former Highveld Syndication schemes.

This follows the Pretoria High Court’s dismissal of Georgiou’s application for leave to appeal against a judgment that found he must honour the buyback agreements contained in the original contracts signed with investors of the Highveld Syndication schemes 21 and 22.

Advocate Louis Bolt, who represented investor Suraiya Noormahomed, said the judgment confirmed that the original buyback agreements remained valid and were not affected by the implementation of the Section 155 Scheme of Arrangement. “The court has now ordered Georgiou to honour the agreements.”

The claims are against Georgiou personally, as well as his company Zephan Properties and the Nic Georgiou Trust.

Moneyweb approached Georgiou for comment last week, but he failed to respond. Hans Klopper, the rescue practitioner, did not respond to a request for comment either.

These parties have however stated that Bolt’s actions, as well as those of the Highveld Syndication Action Group (HSAG), which applied for a class action certification and the rescission of the Scheme of Arrangement, may lead to the liquidation of Zephan. This, in turn, would result in the termination of the monthly interest payments to investors, and Orthotouch would not be able to repay investors in terms of the scheme.

Bolt denied this view and said the liquidator would decide whether interest payments would continue or not.

However, such a scenario may be delayed if Georgiou elects to petition the Supreme Court of Appeal for permission to appeal against the judgment.

Liquidation of Zephan

Zephan is owned by Georgiou and is also the underwriter of the Orthotouch scheme. Orthotouch is dependent on Zephan as it is the operating company that generates the income to pay investors.

Bolt has already applied for the liquidation of Zephan in another case, although its hearing has been delayed to allow the receiver of the scheme, Derek Cohen, to intervene and make submissions.

Bolt said that if Zephan is liquidated, investors in the HS 21 and 22 syndications will have contractual claims (in terms of the buyback agreements) against Georgiou, while investors in the HS 15 to 20 schemes can claim damages for fraud, theft or the mismanagement of the companies. The reason for this is that the HS 15 to 20 investment contracts did not include the buyback clauses included in the HS 21 and 22 contracts.

Asked whether Georgiou, the Georgiou Trust, and Zephan have sufficient funds to repay investors, Bolt said Georgiou must explain what happened to the money and the properties. “He received R4.6 billion from HS 19 to HS 22 for the purchase of the properties identified in the prospectuses. These properties were never transferred into the names of the HS syndication companies. What happened to this money and the properties? If there is a liquidation, the liquidator will have to investigate where the money went and what happened to the properties.”

Georgiou maintains that he never received R4.6 billion from investors. He denied this again in an Orthotouch statement published in May, in which he said he never received any monies from the HS companies.

HSAG to expedite class action certification

The HSAG has also issued and served court documents on 20 respondents, including Georgiou, to expedite the certification application for a class action.

Jacques Theron, the legal representative of the HSAG, said the expedited­­­­­ application only affects investors in the HS 21 and 22 schemes, while the class action application for investors in HS 15 to 22 continues as before.

Interest payments to investors

The legal actions have already affected the monthly interest payments that some 11 000 investors receive in terms of the Scheme of Arrangement. Zephan and Orthotouch have terminated payments to supporters of the various legal actions from Bolt and the HSAG as they deem it unfair that those challenging the scheme should continue to benefit from it.

Moneyweb has seen a letter signed by Georgiou which states that the interest payments for June were made as a “courtesy”, but that no future payments would be made to investors who hadn’t completed a form to indicate whether they support any of the legal processes against Georgiou, Zephan or Orthotouch.

Moneyweb received information that the interest payments for June were made only in August, while no payments for July have been made as yet.

The decision to terminate interest payments was taken unilaterally by Georgiou and Zephan without consultation with the receiver of the scheme, Derek Cohen.

This contributed to Cohen’s decision to resign as the receiver. In a previous interview, he said it had become impossible to implement the scheme when Zephan was reluctant to pay interest to investors while there was a growing number of legal challenges against the scheme.

He also said that threats of physical harm played a role in his decision.

The non-payment of interest to supporters of the legal challenges also followed Georgiou’s bizarre withdrawal of an appeal in the Supreme Court of Appeal earlier this year and the tendering of punitive costs against two scathing judgments against him.

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