Highveld Syndication (HS) investors who are supporting or taking legal action against Orthotouch and Nic Georgiou may soon not receive the monthly interest payments they currently receive in terms of the Section 155 Scheme of Arrangement.
This was the message of a lengthy letter Derek Cohen, the receiver of the scheme, sent to the 18 000 mostly elderly investors this week.
If enforced, it would mean that Orthotouch will cease making monthly interest payments to members of the Highveld Syndication Action Group (HSAG) or investors who are parties to the civil actions of Advocate Louis Bolt.
In the letter, Cohen wrote: “I have been informed by Zephan, as the arrangement’s underwriter, that it cannot allow these HS investors to receive, inter alia, continued payments under the arrangement every month while they are acting contrary to their entitlements under the arrangement.
“Some of these HS investors are part of the court applications and the court actions described in my previous circular, which are aimed at claiming their full investments back, contrary to the provisions of the arrangement. At the same time, however, all of them receive their monthly and other payments under the arrangement. This is grossly unfair to the majority of HS Investors who wish to see the terms of the arrangement fulfilled.
“I am advised that Zephan, owing to the considerable impediments placed before it as a result of the litigation involving the court applications and court actions, will make no further monthly or any other payments to any of the HS investors involved in litigation against it. So as to avoid being criticised for being in breach of the arrangement, their payments will be made into the trust account of an independent firm of attorneys, which account will be under my control,” the letter reads.
Cohen asks investors to complete a form in which they must indicate whether they support the HSAG or other litigation against the scheme.
Cohen’s letter follows several recent legal setbacks suffered by Georgiou. The first was Georgiou’s abandonment of an appeal in the Supreme Court of Appeal which paved the way for the HSAG to bring their applications for certification of the class action and the rescission of the Scheme of Arrangement. The second is a liquidation application for Zephan, which will be heard in June.
Advocate Louis Bolt described Cohen’s letter to investors as a “clear effort to prevent investors from instituting or proceeding with ligation against Zephan to enforce their claims in terms of their buyback agreements.”
Bolt added that if the liquidation application is successful, it will have the same effect as if the application for the rescission of the Scheme of Arrangement is successful.
He also emphasised that the monthly interest payments Orthotouch pays investors are not interest payments on their original capital investments. “It is interest payments on the balance of the outstanding purchase prices in respect of the properties Orthotouch bought from the HS companies. The Supreme Court of Appeal ruled that the interest payments made to Ms de Lange (one of the 46) did not affect the performance of Georgiou’s obligations in terms of the buyback agreements.”
In response to a request for comment, Theron said HSAG members should ignore Cohen’s request to complete the form and indicate whether they support any legal action. “Such a demand is wholly unenforceable and illegal. This is just another attempt by Mr Nic Georgiou to sabotage the litigation in the class action against him (Georgiou) and other respondents. It is common knowledge that Mr Cohen is speaking on behalf of Mr Georgiou. Messrs Cohen and Georgiou are attempting to obtain the identity of Highveld Syndication investors who support the HSAG… and is intended to threaten those investors who support the litigation.”
Liquidation and rescission applications
In the letter, Cohen warns that the liquidation of Zephan “will in all likelihood” bring an end to the Scheme of Arrangement and that investors will have to pay back interest received since November 2017.
The application was brought by Bolt last year after Zephan (owned by Georgiou) failed to repay one of the 46 investors in terms of their original buyback agreements, after the High Court ordered the company to do so. The collective claim of these investors amounts to R30 million.
Cohen said that he was only notified of these developments after judgement was passed, but that he is in the process of trying to have it rescinded. He added that if Zephan was liquidated, all investors would have to repay the interest they received since November 16 last year.
Cohen also warned investors that if the Scheme of Arrangement was set aside, it would result in investors having to repay all the interest payments they received since November 2014.