Orthotouch offers former HS investors only a few cents in the rand

An unidentified third party will offer investors R201m in Accelerate shares and cash to settle claims amounting to R3.9bn.
Approximately 100 former HS investors at a creditors meeting of Orthotouch and Zephan last year. Image: Moneyweb

Former investors in the Highveld Syndication (HS) schemes will receive only a few cents in the rand on their original investments if the business rescue plan for Orthotouch and Zephan is adopted.

Orthotouch and Zephan were put into business rescue in December last year, and the business rescue plan was published at the end of March.

The 60-page Orthotouch business plan offers investors two options as the final settlement of their claims against Orthotouch, which would either give them shares in the JSE-listed Accelerate Property Fund or immediate cash payment. Michael Georgiou, son of former property tycoon and patron of the scheme Nic Georgiou, is the majority shareholder and current chief executive of Accelerate.

Read: ‘Former’ property magnate pleads poverty

Jacques du Toit, the business rescue practitioner (BRP), states in the rescue plan that he investigated all the property transactions and “could not find any proof of misappropriation in regard to the property transactions”.

He did, however, find that the transfer attorneys filed incorrect transaction values with the Deeds Office regarding numerous property transactions through which properties were sold by the HS companies and companies owned or related to Georgiou Senior, including Zephan, via Orthotouch to Accelerate.

Du Toit states these incorrect values “created a false perception of Orthotouch purchasing properties at a high value, either from the HS Companies or from Zephan, and then selling the properties, at a significant/substantial discount, to Accelerate. This perception is inaccurate and completely false, as the incorrect values created the false perception of impropriety.”

This follows an in-depth Moneyweb analysis of the properties’ title deeds which revealed that Orthotouch suffered losses of R782 million as a direct result of these transactions. (A more detailed article on the filing of these “incorrect” values will follow).

Read:
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) (Sale of 31 ‘Orthotouch Properties’ to Accelerate)

The business rescue plan also revealed that the BRP had to analyse unaudited financial information as Zephan last published audited financial statements in 2009 and Orthotouch in 2015.

Michael Georgiou, CEO of Accelerate, Tito Mboweni, former chairman of Accelerate and the current minister of finance, and Nic Georgiou at the listing of Accelerate on the JSE. Image: Supplied

Options for investors

The total claims against Orthotouch amount to approximately R3.9 billion, while an unidentified third party offers investors R201 million in Accelerate shares and cash to settle these claims.

Although the calculation of the final dividend is complex, investors will receive between 1.94c and 6.3c in the rand on the capital amount they originally invested in HS, minus all interest payments they have received since the inception of the scheme.

The BRP states that the interest is subtracted from the original capital investment because not all investors received interest payments. Hence, it would be unfair if all investors receive a final pay-out based on the initial investments.

Option 1

This option allows investors to receive shares in Accelerate as settlement of their claims. They will be issued Accelerate shares for 25% of their original HS investment minus interest payments. The Accelerate shares will be issued at R7.99 a share, being the company’s current net asset value per share. This is despite Accelerate’s current share price of around 67c.

This means an investor with a claim of R100 000 will be issued Accelerate shares at R7.99 each for 25% of their investment, being R25 000. They will therefore receive 3 129 Accelerate shares. At Accelerate’s current share price of 62c, these shares are worth R1 940.

Investors will, therefore, receive 1.94c in the rand, or 1.94% of their original investment, in Accelerate shares.

Investors will benefit if Accelerate’s share prices increase in value in future, as well as from all dividend payouts while they hold the shares.

If an investor had received interest payments, that amount would be subtracted from the R100 000 and shares will be issued at 25% of the net amount.

Option 2

This option allows investors to receive cash and not Accelerate shares. Investors will qualify to receive the same number of Accelerate shares as calculated in option one, but a third party will immediately buy these shares at R2 each. This means an investor with a claim of R100 000 will still receive 3 129 shares but will receive R6 258 cash.

The option would yield the investor 6.3c in the rand or 6.3% of their original investment.

As with Option 1, all interest payments received will be subtracted from the initial investment amount.

The tables below set out the different scenarios for the example of an R100 000 investment:

Option 1 Investor did not receive interest Investor received interest
Original investment R100 000 R100 000
Interest received R0 R30 000
Share allocation based on this amount R100 000 R70 000
Amount the 25% settlement is based on R25 000 R17 500
Accelerate net asset value R7.99 R7.99
Number of Accelerate shares investor will receive 3 129 2 190
Accelerate share price R0.62 R0.62
Investor will receive: 3 129 Accelerate shares 2 190 Accelerate shares
Current value if shares are sold today R1 940 R1 358
Cents in the rand from final settlement 1.9c 1.4c
Percentage of original investment 1.94% 31.4%

 

Option 2 Investor received no interest Investor received interest
Original investment R100 000 R100 000
Interest received R0 R30 000
Share allocation based on this amount R100 000 R70 000
25% settlement R25 000 R17 500
Accelerate net asset value R7.99 R7.99
Number of Accelerate shares investor will receive 3 129 2 190
Per share bought by third party R2.00 R2.00
The cash the investor will receive R6 258 R4 380
Cents in the rand 6.3c 4.4c

 

From this analysis, it seems that investors would be better off selecting Option 2. More information about investors’ individual claims and possible payouts is available here.

The rescue plan also states that if creditors approve the plan, all former HS investors will cede all potential claims against Georgiou, Klopper and Connie Myburgh as the current and former directors of Orthotouch, as well as all other parties related to the HS companies to the third party.

This means they will not be able to institute further legal proceedings against the parties.

Liquidation scenario

The BRP states numerous times that if investors do not approve the plan, both Zephan and Orthotouch will be placed into liquidation. In such a scenario, the plan states investors would receive approximately 1.7c in the rand. The plan adds that if Orthotouch is liquidated, investors “run the risk of having to repay all the interest they have received to date, but would be entitled to share in those collected proceeds”.

In response to a question regarding on what grounds investors could be forced to repay interest in a liquidation scenario, Du Toit cited such acts following the liquidation of the Relative Value Arbitrage Fund (RAVF) and “other so-called ‘Ponzi schemes'”.

According to Du Toit, “the clawback of payments received by investors can take place by virtue of the impeachable transaction provisions in term of the Laws of Insolvency”.

He said the class action litigation and the application to have the Scheme of Arrangement (SoA) set aside due to the schemes being “illegal” may result in investors having to repay the interest they have received.

Approval

All creditors, including former HS investors, have an opportunity to vote for or against the proposed business rescue plan at a creditors’ meeting. For the plan to be adopted, creditors holding 75% or more of the total claims must vote in favour of the plan.

Voting will take place at the meeting. Those who are not able to attend can complete and submit a proxy form with their vote to the business rescue practitioner prior to the meeting. The date for the meeting has not been set due to the Covid-19 lockdown.

The unnamed third party

The business rescue plan does not identify the third party who will settle investors’ claims in terms of the options described above.

However, Du Toit stated in a letter to investors that Georgiou played a pivotal role in facilitating the approximately R200 million needed to settle the claims.

In the letter, Du Toit says he “still see[s] Nic Georgiou, as director of Zephan and Orthotouch, as a very important link in the business rescue processes of the companies, especially insofar as his ability to facilitate funds from a third-party proposer in order to offer shares and/or payments to investors is concerned”.

“Without the involvement of the third-party proposer, I would not have been able to propose any other solution other than liquidation,” he states.

Response

Moneyweb asked the members of the creditors’ committee what they think of the plan.

Helgard Hancke, chair of the Highveld Syndication Investment Forum (HSIF) and holder of a claim against Orthotouch, said “investors must bear in mind when making a decision that if the proposed rescue plan is not adopted the BRP will with immediate effect file an application to liquidate both Orthotouch and Zephan.

“The BRP warns in his letter 31st March 2020 that in the case of liquidations investors will run the risk of having to repay all interest received, but will then be entitled to share in the collected proceeds.

“We (HSIF) are of the opinion that liquidation will result in a drawn out process and the collected proceeds which the BRP refers to will be reduced to nil after liquidation costs are recovered. Investors will eventually lose everything and can even be confronted with a contribution towards cost order by the liquidators.

“Taking the above into consideration the HSIF are also of the opinion that support for the rescue plan offering two options will be the better choice to recover at least something of the original investment instead of losing everything and even face cost claims.”

Dr Gert Holtzhauzen, a specialist business rescue practitioner and an official representative of a group of investors, questioned the legality of the business rescue plan as:

“It is unacceptable and legally untenable to incorporate the two companies into one entity for business rescue purposes. The two companies are individual entities and should at all times be treated as such.”

He added that “Orthotouch had no business and thus has no business to rescue and therefore has no right to future existence and should be liquidated. Any attempt to proceed with business rescue proceedings under the circumstances would be an abuse of the process.”

Holtzhauzen also contends the current plan does not investigate the actual flow of funds. “In short, the logical movement of funds will be the investments made by the investors into a dedicated bank account/s, account/s from which funds will flow in the acquisition of properties, cost-related thereto and then a paper trail which should be easily reconcilable with the transactions that have taken place. Due to the absence of audited financial statements, no reliable deduction could have been made by the practitioner.” Read the full statement here.

Jacques Theron, attorney of the Highveld Syndication Action Group, said the business rescue plans are aimed to intimidate Highveld Syndication investors into accepting an even worse “repayment” plan than before; and to delay the class action litigation and recovery of losses from Georgiou.

“Despite this, Georgiou will not succeed, as the class applicants seek orders that the class actions against him and his entities continue, despite the business rescue proceedings. The two plans make a complete mockery of established principles regulating business rescue in respect of companies that apparently didn’t even prepare, keep or filed financial statements.

“The plans were drafted to clearly to suit Georgiou’s own interests and not those of the investors and bona fide creditors.”

Read the full statement here.

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COMMENTS   19

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Greed is a very effective reducer of common sense. If somebody comes to you offering, say, a 14% return, then you immediately need to ask him why he wants to pay you almost double the interest for which he can borrow the money at the bank. What does the bank know that you don’t? I know we’re talking about pensioners here, but really, it’s not hard to smell a rat in any dodgy investment that offers returns that are too good to be true.

Sell the Waterfront in Bfn and pay back the money

These are working class people!

You have 100’s of other properties filled with Government departments enough to look after a few generations of Georgiou’s

How much more do you want Mr Georgiou?

Arrogance diminishes wisdom and so too greed!

Zuma and Magashule do not know the names of all the individuals they have lied to, defrauded and impoverished, but Georgiou has a share register. This share register is Georgiou’s ticket to …

Now I have heard it all.Absolutely absurd and abusing the process to the benefit of the looters.Why is the third party kept a secret?? What have they to hide??? Investors paying back interest on what basis?? Please Mr BRP you must have missed something in your investigation and that is where is the R4.6 billion that Zephan received??? What about the flow of funds Mr new BRP or genie ? The statement that wrong valuations were filed by the transfer entity is outrageous. Put that nonsense up your pipe and smoke it. Get the valuaters together and hear their story. I am convinced that then we will know who is the culprits. PLEASE LIQUIDATE TO GET THE FORENSIC INVESTIGATION BALL ROLLING. I will rather accept that way than this pathetic offer then at least we will know who were the looters. I can assure you they will make a plan to refund investors if their heads are on the block.

“Incorrect property values filed at deeds office” Perhaps the BRP should get independent valuers out. I wonder if filing the incorrect valuations has capital gains tax implications? Is SARS looking at this?

Well. I have just checked the ‘share register’ excel sheet attached to this article and Mr BRP all my family members and myself included have our investment amounts and interest payments reflected INCORRECTLY???!!!

IT SEEMS INCORRECT INFORMATION IS THE ORDER OF THE DAY WITH THE GEORGIOU’S!!!

#LOOK INTO THIS MESS IMMEDIATELY…
And by that I mean do a PROPER INVESTIGATION.

Ja onware inligting is aan die orde van die dag

Ons ma is oorlede in Augustus 2012

Haar maandelikse inkomste uit haar HS15 en HS18 aandele was R2 442.56 per maand. Op haar boedelrekening was 5 maande se inkomste wat HS15: R499.50 en HS18: R11 713.30

Haar totale aandele was 469 (historiese waarde – R469 000.00) Ek het het n R244 000 beleggging gekry volgens my 2013 sertifikaat nommer 25653.

Na die Reëlingskema van 26ste November 2014, het Orthotouch my aandele se kapitale waarde van R244 000 verminder het na R125 175.40

Orthtouch beweer ek het reeds R65 357.43 rente gekry wat afgetrek word teen die waarde van die verminderde kapitale waarde en hulle se my aandeel is dus nie eers R60 000 werd nie.

Ek het ongeveer R35 800 in totaal oor die jare ontvang. Hulle maak of die “rente” wat hulle betaal ‘n guns is wat hulle goedgunsteliglik gegee het en wat afgetrek moet word. Maar rente is tog die betaling wat hulle moes gee vir die kapitaal wat aan hulle geleen is.

Ek het ook opgetel dat mense op my bladsy met dieselfde van en presies dieselfde hoeveelheid aandele en wat onder mekaar gelys is, waarskynlik ook soos ek hul aandele geeerf het.

Om ‘n voorbeeld te noem – 25683/84/85 het elkeen so 272 aandele (het dalk histories aan ‘n afgestorwene behoort wat 815 aandele gehad het en dit tussen 3 nasate laat deel het). Die “Interest” / rente was R72 856 vir elkeen. Hulle sou nie elkeen R72 856 gekry het nie – hulle sou per persoon tog net ‘n deel gekry het

Met so baie van die oorspronklike eienaars dood en die aandele verdeel onder hul “beneficiaries” hou mennse nie die soort goed dop nie

And not a single arrest yet ?

The BRP did not find any misappropriation apparently.

Is this where Tiger King was filmed?

Steinhoff
Highveld Syndicate
Ecsponent
Who’s next? … F-bond?

i CAn Probably fIgure This onE out… Can anyone else…..?….. DOUBT IT.

Please, please do us the favour and liquidate – as an investor I couldn’t care less. I would, however, love to know the identity of the third party – any bets on that anyone?? Me thinks third party to be made known to reveal the rat in the hen house.

It sounds like typical scare tactics, scare the old pensioner ladies..

Perhaps a sign there is merit in the class action. Georgiou and son clearly trying hard to slip off the hook.

So it seems the thieves are Picvest! They inflated property prices and made gazilions in the process! Also property prices were not properly reported by Deeds office. So here’s my questions:
Should we believe Georgiou is a victim like us?
Will Picvest director’s have to pay back the money or face prison time?
Did the business rescue pract lay charges against Picvest, since he lays the blame on them?
Can we have a claim against the deeds office or the crooked conveyancers?
Also, my investment is not correct on the spread sheet Mr BRP! If you can’t get this right, do you really know what’s going on?
Am I wrong to sum up as follows: SOMEONE STOLE OUR MONEY AND NEEDS TO PAY BACK OR GO TO JAIL?
Is there really a secret third party, or is it just a front for the Georgiou, Picvest cabal, making sure the get away with the billions stolen?

This must surely be the biggest Corporate Capture in the history of SA and the authorities are turning a blind eye on all of this. What a shame !

The undertone of the information in this article: accept this offer (it truly is an offer since the investors are bleeding)or else it will be regarded as a ponzi scheme. Great, if it is a ponzi scheme the originators will have to face the law and…… As for the blood on the buildings and smiling faces, think…….

What are the tax implications of accepting the cash offer, i.e. 6.3 cents in the rand? Can one declare a tax or investment loss?

In our case the shares were left to us in an estate, where they presumably incurred estate duty at full face value (even though this was after the scheme had collapsed). Would that change whether we can record a tax loss?

Regstelling – As julle my ander kommentaar wou verwyder sou ek dit waardeer

Ek nou gehoor my oorspronklike belegging van R244 000 is nou maar 7 635 aandele werd en as ek die kontant opsie kies wat nou uitbetaal word, is die kontant opsie wat ek sal kry R 2.00 per aandeel wat beteken die koninkilike som van R 15 270 word aan my uitbetaal. Die verlies op die kapitale waarde is dus R228 730!

Word die aandele gehou en toegelaat om te verouder op die JSE kry ek ‘n kwart van die kapitale bedrag terug naamlik R61 000! Wat nogsteeds maar ‘n kwart is van wat oorspronklik ingesit is en ek het mos nou al geleer hulle aandele is nie eers werd die papier waarop dit gedruk is nie

Hoe enige iemand vrywillig by die firma gaan aandele koop gaan my verstand te bowe

End of comments.

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