Moneyweb’s investigations into two related investment schemes operating in the Western Cape have raised concerns about the prospects of investors getting their money back. One is currently facing a liquidation application from an investor who was not paid out his capital when he requested that it be returned to him, while the other has stopped paying out the monthly interest it owes to investors.
Questions were first raised about Mortgage Secured Finance when Moneyweb was contacted by a concerned investor earlier this year. She was offered interest of 13.5% on her capital, while others have been paid returns as high as 14.5%.
Moneyweb has since learned that an application to liquidate Mortgage Secured Finance has been lodged in the Western Cape High Court by an investor who is claiming that he is owed R5.8 million plus interest since February. He requested a withdrawal in December last year, but received nothing after the stipulated 60 day notice period, and has still not been paid out.
The application is being opposed by one of Mortgage Secured Finance’s directors, Etienne de Beer, but supported by the other, Willem van der Vyver. There has been a breakdown in the relationship between the two, and they now find themselves on opposing sides. Since mid-2012 Van der Vyver has had no direct involvement in running the business, which has been handled entirely by De Beer.
The investor has applied for the company’s liquidation on the basis that Mortgage Secured Finance is unable to pay its debts, and that “it is in any event factually insolvent”. This is based on its failure to repay him the capital he is owed.
In his responding affidavit, however, De Beer argues that the company is solvent and that “its assets substantially exceed its liabilities”. The reason it has been unable to honour the withdrawal request, he says, is due to cash flow constraints that have arisen as a consequence of its business model.
However, the financial position he paints of the company does not appear to match information available in its bank statements, which Moneyweb has seen.
De Beer’s affidavit
De Beer claims that Mortgage Secured Finance has a debtors loan book of R15.4 million. The interest collected from these loans is what it pays out to its investors, who are actually the company’s creditors since their investment takes the form of a loan made to Mortgage Secured Finance.
This loan book is secured by mortgage bonds of R13.9 million, but these bonds are held over only 80% of the value of the properties they cover. There is, therefore, an additional 20% security, of R2.8 million, according to De Beer. Furthermore, he states that the mortgaged properties have “a collective sworn valuation” of R20.6 million, based on valuations conducted between 2010 and 2015. The amount should, therefore, be even higher.
According to De Beer, the company currently owes a balance of R15.7 million to investors. Its assets, therefore, exceed its liabilities.
In addition, De Beer states that the amount of interest received by the company is R238 758 per month. Interest paid out, according to his court papers, is R193 750.
This, he argues, shows that the company “is well able to meet those interest commitments in the ordinary course”.
These figures do not, however, tally with what is revealed in the company’s bank statements. A Moneyweb analysis shows the amount of interest received by Mortgage Secured Finance and the amount of interest paid out by the company in the six months from March to August 2018:
|Interest received||Interest paid out|
|March||R177 983.75||R329 246.60|
|April||R107 684.70||R319 656.66|
|May||R156 208.47||R315 590.36|
|June||R181 509.31||R344 306.73|
|July||R100 561.68||R353 989.74|
|August||R107 753.31||R345 768.70|
The interest paid out to investors every month is therefore substantially greater than the amount of interest received. In some months it was more than three times higher.
Of greater concern to investors is that the total amount of interest paid out must be for an amount far greater than the R15.7 million De Beer claims is owed to its creditors. Even at the lowest rate of interest that the company claims to pay, which is 11.5%, R345 768 represents monthly interest on R36 million. This is more than twice the capital amount De Beer claims is invested through the company. It is also well above the amount covered by its loan book.
Loxfin Trade Finance
Mortgage Secured Finance’s bank statements also reveal that in this six month period more than R1 million was paid over to the bank account of another company run by De Beer, Loxfin Trade Finance. De Beer was accepting investments into this company from members of the public and paying interest of between 15% and 18%.
Over the period under review, however, by far the bulk of the money deposited into this bank account came from Mortgage Secured Finance. In all instances, it was immediately paid out as interest.
This flow of funds stopped on June 6, and from the end of that month, Loxfin Trade Finance stopped paying any interest to investors. It appears therefore that Loxfin Trade Finance had become dependent on the funds being transferred from Mortgage Secured Finance to pay its investors. However, there does not appear to be any legitimate reason for this money to have been paid over in the first place.
The only money earned by Mortgage Secured Finance is from interest paid on the mortgage bonds it has issued. Investors in Loxfin Trade Finance cannot be exposed to the same mortgage bonds as the investors in Mortgage Secured Finance since the size of the loan book does not allow it.
De Beer, however, declined to comment on any of these anomalies picked up by Moneyweb. Communicating through his lawyer, he would only say that:
“Mortgage Secured Finance is party to litigation proceedings. The High Court is the only forum in which the matters will be heard and is sub judicae. The matters cannot be traversed in any other forum or media. Our instruction is that Mortgage Secured Finance will not litigate through correspondence or via alternate forums/media.”
Moneyweb pointed out that there are no legal proceedings involving Loxfin Trade Finance, and that it is not even mentioned in the liquidation application. However, De Beer still declined to answer any questions relating to this company.