This article should be read in conjunction with a previous article, ‘Where is Hans Klopper?’, which was published on March 4.
Orthotouch and Zephan were put into business rescue late last year, effectively bringing an end to the ‘rescue process’ of the failed Highveld Syndication (HS) schemes. Although a business rescue plan has not been published, it is clear that the 18 700 mostly elderly people who invested R4.6 billion in the schemes may expect to receive only a few cents in the rand.
The business rescue process of the HS companies was led by Hans Klopper, the current head of restructuring at the international auditing and consulting firm BDO.
He was assisted by various individuals, including corporate lawyer Connie Myburgh. Myburgh is also the chairman of the Nova Property Group, the rescue vehicle of the failed Sharemax investment scheme.
Over the past 18 months, Moneyweb conducted a follow-the-money investigation into transactions related to the 79 properties which were originally syndicated as part of the Highveld Syndication (HS).
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)
This analysis revealed the selloff of virtually all these properties without much, if any, of the proceeds flowing to investors. It is critical that the roles and conduct of the decision-makers, in particular Nic Georgiou, the kingpin of the schemes, Klopper and Myburgh are investigated.
Moneyweb has identified seven aspects that we believe demand investigation.
A forensic investigation should focus on seven developments
1. The non-transfer of properties to the HS companies
The most blatant development to be investigated is the non-transfer of 42 properties which Georgiou, or entities related to him, sold to HS investors.
Investors paid the R3.4 billion for the unencumbered properties, but they were simply never transferred to the HS companies in which the investors were shareholders. This R3.4 billion remains unaccounted for.
Klopper failed or neglected to investigate this after his appointment as business rescue practitioner (BRP). He stated in his business rescue plan that such an investigation would have been too costly. (The business rescue plan was virtually a carbon copy of the previous offer Georgiou made to investors, which was rejected by investors. It was therefore implemented via the business rescue process.)
In reality, if one takes account of the nature of the assets and the revenue streams their transfers created, it should not have been too difficult to investigate.
Investors’ R3.4 billion was paid into the trust account of attorney Eugene Kruger, who released the monies, apparently before transfer took place. An analysis of bank statements would surely reveal where the money ended up.
Kruger’s release of the R3.4 billion before transfer is not consistent with the usual practice when it comes to transfers and should be investigated.
Klopper’s failure to investigate the matter means Georgiou, and entities related to him, have never been held accountable for the non-transfer of the properties to Orthotouch.
2. The sale of the 42 properties to third parties
In addition to the non-transfer of properties referred to in point one above, Georgiou sold the 42 non-transferred properties to third parties. This means Georgiou sold the properties twice: first to investors through the successful syndication of the properties, and second to third parties, including his son’s listed company, Accelerate.
These transactions also resulted in significant accounting losses at Orthotouch, and have never been explained to investors. It is also not clear how the proceeds were used.
Klopper and Myburgh, as directors of Orthotouch, authorised these sales transactions.
3. The sale of 31 properties to Accelerate
Klopper and Myburgh also approved the sale of 31 properties in December 2013 to Accelerate, the listed entity of Georgiou’s son Michael, for R1.3 billion.
The sale resulted in only R30 million flowing to Orthotouch. According to Moneyweb’s calculations, Orthotouch suffered a loss of R782 million in the process.
Sixteen of the 31 properties formed part of the 42 properties that were never transferred to Orthotouch.
4. Conflict of interest?
Shortly after Klopper was appointed HS business rescue practitioner, he was appointed to the Orthotouch board, ostensibly to support and protect the interests of investors. He therefore had a double fiduciary duty which was to represent and protect the interests of investors while performing his duties as a director mainly to ensure full implementation of the business rescue plan and subsequently the Scheme of Arrangement under Section 155
He failed in both these responsibilities.
This may well have resulted in a conflict of interest, potentially creating an untenable scenario where Klopper could not fulfil his fiduciary duties as BRP and director of Orthotouch. For example, if Klopper took legal action against Orthotouch in his capacity as BRP for the non-implementation of the business rescue plan or the Section 155 SOA, he would in effect have taken legal action against himself as a director of Orthotouch.
The extent of the conflict, if any, will become evident if Klopper’s remuneration during this process is analysed.
Klopper has never disclosed how much he was paid as a director of Orthotouch or as BRP.
In another example of what may point to Klopper’s compromised position, Klopper and Myburgh did not take action against Zephan, as the underwriter of the scheme, when Zephan unilaterally and in contravention of the Section 155 SOA terminated all interest payments to investors who supported the legal processes against Georgiou and related parties.
5. Sale of properties to the Delta Property Group
In the Section 155 SOA, Georgiou “pledged” to transfer 14 properties which did not form part of the original 79 syndicated properties to Orthotouch. It was mooted as proof of Georgiou’s commitment to the scheme.
Not only did this not happen, but Georgiou sold the properties a year later to the Delta Property Group.
These sale transactions resulted, according to the Moneyweb investigation, in an R272.9 million loss for Orthotouch. Klopper and Myburgh, as directors of Orthotouch, approved the transactions.*
6. Why are the HS companies not in liquidation?
Despite the developments listed above, which were to the apparent detriment of investors, Klopper has not put the HS companies into liquidation. Even after Orthotouch and Zephan were put into business rescue in December last year, the HS companies remain under business rescue.
From Moneyweb’s investigation, it is clear that virtually all the properties in the HS companies were sold to third parties in questionable circumstances, and that a Section 417 investigation into the conduct of Klopper, Myburgh and Georgiou seems warranted.
A Section 417 inquiry is aimed at investigating events leading up to the liquidation of a company to ascertain whether any assets were stripped or looted.
7. Klopper approached Jacques du Toit to become BRP of Zephan and Orthotouch
Jacques Du Toit confirmed during the Orthotouch and Zephan creditors’ meeting that Klopper was one of the parties who approached him to become the business rescue practitioner of the companies. Georgiou’s lawyer, Mario Kyriacou, also acted as Du Toit’s advisor during the meeting. Du Toit’s impartiality and independence may therefore be open to question. The last thing investors need is a soft approach on developments listed above and the roles played therein by Georgiou, Klopper and Myburgh.
It is also critical that the new business rescue practitioner draft his own business plan, and not follow Klopper’s example to publish a business rescue plan that was based on a previous plan Georgiou put to investors, but which was rejected.
The interests of the HS investors would, in Moneyweb’s view, be better served and justice may finally prevail albeit late if Orthotouch is liquidated and a Section 417 Inquiry is held.
One thing investors should bear in mind is that the trail of properties and such vast sums of money can always be traced.
* After the publication of the article, the amount of the accounting loss related to the Delta transactions was amended to R272.9 million. Moneyweb regrets the error.