Orthotouch, the rescue vehicle of the failed Highveld Syndication companies, has allegedly for several months not paid interest to potentially thousands of investors who have not distanced themselves from the legal challenges facing Zephan and Orthotouch.
This is despite the submission of a formal application for a court order to compel Orthotouch and Zephan, a company owned by property mogul Nic Georgiou and underwriter of the scheme, to pay the interest due to investors in terms of the court-sanctioned Section 155 Scheme of Arrangement.
Derek Cohen, receiver of the Orthotouch scheme, confirmed to Moneyweb the lodging of the application for a court order, but said that he had no further information. He resigned in July from his position as the receiver, although it still needs to be sanctioned by a court.
In an earlier interview with Moneyweb, Cohen said he had no alternative but to turn to the courts after Zephan did not pay interest to around 4 500 of the investors in July, which is in contravention of the conditions of the scheme.
These investors are nearly half of the approximately 11 000 investors who are entitled to monthly interest payments.
Over the past few days, Moneyweb received more than a hundred emails and messages from desperate Orthotouch investors, complaining about the non-payment of interest and the lack of information forthcoming from Orthotouch.
Almost all the investors claimed that they hadn’t received their monthly interest payments since July. This means that Orthotouch owes these investors interest for three months. Interest payments for September were payable on October 7.
Several e-mails described how destitute some investors have become since the interest payments stopped. One investor claimed she had to sell her house, her last remaining asset, to survive.
The non-payment of interest started in June when interest payments to supporters of the legal actions from advocate Louis Bolt and the Highveld Syndication Action Group (HSAG) were unilaterally terminated. It was deemed unfair to investors who do not support the legal challenges to continue interest payments to investors who do.
The HSAG is seeking certification for a class action and the rescission of the scheme, while Bolt applied for the liquidation of Zephan. This liquidation application follows several default judgments, which compelled Zephan to repay the capital and interest to individual investors in terms of their original Highveld Syndication investment contracts.
Zephan and Orthotouch contend that the legal costs to contest these challenges, as well as the possible liquidation of Zephan, may cause the whole scheme to collapse.
Non-payment of interest
Zephan terminated interest payments in June when it informed investors that they needed to complete a form to indicate whether they support any of these legal challenges or not. It stated that those who support the legal challenges would no longer receive interest payments.
It is not known how many investors submitted such forms, although interest payments to investors who did not complete the form were also withheld. Interest payments were later made for the month of June, but Moneyweb is not aware of any payments for July, August, September or October.
Moneyweb sent a list of questions related to the non-payment of interest to Georgiou and his lawyer Mario Kyriacou, but no response was forthcoming.
In response to Moneyweb questions, Bolt said he wasn’t aware of Cohen’s formal application for a court order. He also reaffirmed his previous view that this is blackmail of investors who support the legal action.
Jacques Theron of Theron and Partners, the legal representative of the HSAG, said the HSAG is receiving more frequent complaints from its members regarding the delayed or non-payment of interest.
He said this is despite receiving a letter from the attorneys of Orthotouch that Orthotouch intends to comply with the interest payments set out in the Section 155 Scheme of Arrangement, but that “Orthotouch’s ability to pay depends completely on Zephan”.
Theron said that the liquidation application against Zephan makes it “highly probable that some HS investors are not paid due to the financial difficulties that Zephan faces. If Zephan is liquidated, a complete seizure of payments can be expected.
“If Orthotouch does not honour the Section 155 Scheme of Arrangement, other possibilities, such as the liquidation of Orthotouch, will be considered by the HSAG.”