Sharemax ‘tombstone’ may soon be under the hammer

The Villa building contractor obtains high court award.
A view of part of The Villa – tombstone of the failed Sharemax property syndication scheme and one of biggest eyesores in Pretoria. Image: Moneyweb

The majority stake of the massive half-built and derelict shopping mall The Villa in Pretoria, the erstwhile flagship project of the failed Sharemax investment scheme, may soon be liquidated or sold to a third party.

Any such transaction may have dire consequences for the Nova Property Group, the so-called rescue vehicle of the Sharemax scheme, as it owns 30% of The Villa. Thumos Properties 1, previously known as Capitol 1, holds the balance of 70%.

Read:
AfriForum wants review of NPA decision not to seize Nova assets
‘Sharemax investors screwed twice’

Thumos was also the original developer and contracted GD Irons Construction to construct The Villa. However, after Sharemax collapsed in 2010, it could not pay GD Irons Construction, and the contractor subsequently suspended construction work.

The Villa’s possible liquidation or forced sale follows the Gauteng North High Court ruling that Thumos must pay GD Irons Construction just under R500 million.

The court ruled that Thumos must pay R249.4 million in terms of the original contract and another R294.4 million in compound interest.

This is unlikely, as Thumos is currently in business rescue and its only asset is its stake of 70% in The Villa. In addition, The Villa has R16.1 million in outstanding debt owing to the Tshwane Metro.

GD Irons Construction CEO Geoff Irons told Moneyweb that Thumos Properties 1 went into business rescue in September last year when GD Irons Construction sued the company for the outstanding payments.

“The big thing now is for us as contractors to have it converted to a liquid asset instead of a lien or high court award. If they don’t pay us, then we will make certain demands or take it further,” he said.

“Do we go for the liquidation of Thumos … or the other alternative is, does Thumos find a buyer for The Villa? It will be up to Thumos’s business rescue practitioners [BRPs] to decide what assets need to be sold to pay this award,” Irons said.

Attempts to obtain comment from Nova Property Group CEO Dominique Haese were unsuccessful.

Thumos Properties 1 director Paul Kyriacou referred Moneyweb to George Nell, the company’s BRP.

Nell confirmed that Thumos Properties 1 is in business rescue under his control and that Thumos Properties 1 owns a 70% undivided portion of the land on which The Villa has been built, with the other 30% owned by Villa Retail Park Investments (Pty) Ltd.

Villa Retail Park Investments is controlled by the Nova Property Group, the rescue vehicle of the failed Sharemax property syndication schemes.

Nell confirmed Thumos Properties does not own any other assets apart from The Villa.

“The security is in the physical structure so there is no money available to pay R500 million out of the funds of Thumos Properties 1.”

Predicament

“Imagine you have got 70% of the land registered in the name of the company that I am in control of as an officer of the court and 30% is in Villa Retail Park Investments, and now the building is erected all over this space [land].

“To extract the value from the sale of the building, you need to have both 70% and 30% of those involved. So it is a predicament to get this thing going,” he added.

Nell said The Villa could be sold or auctioned.

“I’m looking at that option but I can only deal with 70% – and 70% of an undivided property is not worth as much as 100%,” he explained.

Nell said he has been engaging with Nova Property Group chair Connie Myburgh to get Villa Retail Park Investments “to work with me”.

However, Nell said he had first needed the judgment in the GD Irons Construction case and now he is “looking at the next step”, including developing a business rescue plan.

Read:

Nell said he was thinking of liquidating Thumos Properties 1 but the liquidator will sit with the same predicament he is facing.

“Nothing will change actually because you will only have 70% of the property rights and I think they can deal with it in business rescue. Hopefully there will be a breakthrough in the next six weeks to two months,” he said.

The ramifications of a liquidation or forced sale could be significant for Nova, as The Villa is Nova’s single largest asset.

In its most recent financial statements, Nova valued The Villa at R848 million, which represents nearly 40% of its total property portfolio.

However, Nova’s auditors suggested it was overvalued. Although Nova only owns 30% of the property, it consolidates 80% of the value of The Villa in its books. If the 70% is sold to a third party, the 80% consolidation may have to be reversed.

Read: Is the Sharemax landmark worth R1.6bn or R616m? [Jan 2017]

Meanwhile, the judgment from Judge Brenda Neukircher is highly technical and involves disputes over who the actual contracting entity is.

However, her ruling was clear: Thumos Properties 1 must pay GD Irons Construction more than R500 million and legal costs.

Myburgh emails the judge …

Neukircher also referred to irregular correspondence she received from Connie Myburgh, a month after the conclusion of arguments and shortly before she was to give judgment.

She said Myburgh approached her as an “amicus curiae” (a friend of the court) and that he represents the holding company through which Nova owns 30% of The Villa. According to the judge, Myburgh did not copy any of the other parties into the email.

“As such, he wanted to bring certain information to my attention as regards dealings he had had with the BRP’s and affidavits filed specifically on behalf of Capicol 1 and Kyriacou in the liquidation proceedings.

“Given the irregular nature of this, I immediately [asked] my secretary to forward the email, and its attachments, to the parties for their comment,” said Neukircher.

She said GD Irons Construction responded and objected to the email and the attachments, but Thumos and the company’s BRP elected not to respond.

The judge added that Myburgh, on his own version, is an attorney and an officer of the court and, as such, is aware of the rules regarding admitting further evidence once the matter has been finalised and before judgment is handed down.

“He has brought no application to be admitted as amicus, nor has he brought an application to re-open the trial and lead further evidence. This is important as it affects the rights and interests of the actual parties to the litigation of which he is not one,” she noted.

“As stated, Mr Myburgh is neither a party to the litigation, nor does he represent any of the parties in this litigation, nor has he applied to be so joined and his clients [Villa Park Retail] have also never sought to be joined in these proceedings.

“It is therefore unclear what mandate he has from his clients to direct any correspondence at all. In my view, the emails and affidavits he placed before me are not evidence and cannot be afforded that weight. They are, as is his email, not taken into account for purposes of the evaluation of the actual evidence presented,” Neukircher added.

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The Georious should be in the tombstone

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