Legal battles involving Sharemax far from over

Legal battles involving Sharemax far from over
April 13 2011 at 09:03am
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The legal minefields surrounding the collapse of property syndication company Sharemax Investments are growing. Sharemax’s attorneys, Weavind & Weavind, and Capicol, the developers of the Zambezi Retail Park and The Villa, have both launched independent defamation and damages cases.

A criminal case has been lodged against Weavind & Weavind related to the alleged illegal release of Sharemax investor funds from its trust account before the transfer of properties to the syndication vehicles.

A demand for repayment has been issued to Weavind & Weavind on behalf of 11 investors in terms of a section of the Companies Act that is normally a precursor to a liquidation application.

Claims have been submitted to the fidelity fund of the Law Society of the Northern Provinces and Attorneys Insurance Indemnity Fund, both also related to the release of funds by Weavind & Weavind.

Lurking behind the scenes is the finding by an investigation conducted for the registrar of banks that Sharemax’s funding model contravened the Banks Act. Surely at some stage someone is going to be prosecuted for this contravention?

The new board of the Sharemax group of companies also plans to seek permission from the high court for an offer of compromise in terms of the Companies Act to creditors in schemes promoted and marketed by the company.

However, it has been claimed that this planned offer was seeking to legalise an illegal act and was prejudicial to the rights of “prospective investors”.

In fact, doubts have been expressed about whether the Zambezi Retail Park or The Villa schemes had any investors or shareholders because a suspensive condition had not been fulfilled: the transfer of the properties into the syndication vehicle mentioned in the prospectuses for both of these schemes.

But can such a scheme of arrangement be applicable to investors and shareholders in the company or only creditors?

In terms of a government notice on property syndications, the money deposited by prospective investors into the trust account of Weavind & Weavind must be repaid if the syndication does not proceed.

Weavind & Weavind maintains the government prohibition on the release of investor funds for a property syndication prior to the transfer of the property is not applicable to the firm and various clauses in the prospectuses made it “abundantly clear” it was not the intention that investors funds would only be paid out of trust once the property had been transferred. However, the prospectuses also specifically state that investors funds will not be released from its trust account prior to the transfer of the property.

What then gives Weavind & Weavind the right to ignore or disregard a mandatory government notice related to property syndications?

The share and debenture certificates issued by Sharemax to prospective investors also specifically state that their “investment” would be deposited into Weavind & Weavind’s trust account and “kept there until the investment amount is processed and the property is transferred”.

Finally, an arbitration last year concluded Sharemax must pay R64 million, excluding damages, to Capicol.

This amount was due for payment by no later than March 7, but the Sharemax board has admitted it is unable to pay it. Does this not mean Sharemax is insolvent?

If so, does the rescue plan being hatched by the new Sharemax board mean the company is still trading and the directors of the company could be held liable for reckless trading?

It is obvious this saga, involving about 40 000 shareholders who have invested about R4.5 billion in property syndications promoted and marketed by Sharemax, will probably take years to resolve. page 20


Edited by Peter DeIonno. With contributions from Roy Cokayne and Samantha Enslin-Payne.
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News



Select page: [1] Dec 07, 2007: Sharemax increasingly paranoid

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» Dec 07, 2007: The mega-size property syndicator’s lawyers are doing good business threatening journalists and financial advisers. Read about its latest threat.

Botha, Willemse & Wilkinson, attorneys for property syndication company Sharemax Investments, are onto a good wicket. They have drafted countless threatening letters to journalists (including this one) at Sharemax's expense.

Apart from that, they have racked up good fee income in the ongoing legal battle between Sharemax and former financial journalist Deon Basson.

The latest Sharemax job to land in the Botha, Willemse & Wilkinson offices involves a threat issued to financial adviser Andre Matthews.

Matthews had the temerity to author an analysis of Zambezi Retail Park, a Sharemax syndication.

The critique can be read by clicking here.It was distributed to various financial advisers and raises concerns about the Zambezi development.

Says Matthews: "It took Sharemax roughly a day to get a lawyer's letter, threatening me with action for defamation, on my desk. There was no defamation, only an analysis of its prospectus." The letter was written by Coenie Willemse, an attorney for Botha Willemse &Wilkinson.

To read Willemse's letter, click here (letter, pages 1,2, 3 and 4 ). To read Mathews's response, click here.

The main concern raised by Matthews is a so-called "cash flow shortfall fund" which will be used to subsidise investors' income. This is a common theme among Sharemax's syndications, which offer investors a minimum annual cash income.

Matthews is worried that the Zambezi Retail Park fund will be sufficient only for a few months before it is depleted.

Willemse does not address this specific concern in his letter to Matthews.

Matthews argues that there is no justification for investing in the Sharemax project. "It is far better for investors to put their funds in a fixed deposit," he notes. "The risks for the tiny bit of upside the investors might get vesus the probable downside are simply way too great."

Moneyweb has previously noted that some respected financial advisers believe that Sharemax and other property syndications have excessive fees and lack transparency.

This is not the first time that Coenie Willemse has threatened financial services professionals. The Sharemax website carries an apology from PSG Konsult Academy CEO Jan (JJ) Serfontein.

In a letter addressed to Willemse, which is published on the Sharemax website, Serfontein apologises for allegedly untruthful statements made by independent contract facilitator Adriaan Schutte during a presentation.
Source: Moneyweb - www.moneyweb.co.za

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In the News GOING BACK TO 2006.......OUR TOOTHLESS WATCHDOGS WTF IT'S 2011 ????????

Property syndication rules coming soon - 13 February 2006
Roy Cokayne
Pretoria - The trade and industry department will soon publish draft regulations to control the conduct of companies involved in public property syndication investments.

Ebrahim Mohamed, the chief director of the office of consumer protection in the department's consumer and corporate regulation division, said on Friday that the draft regulations would be published in the Government Gazette, allowing 30 days for public comment.

The department hoped to publish the final regulations by the end of March. Attempts to clean up conduct in the industry follow an investigation by the department's consumer affairs committee into property syndication scams in October 2004.

Mohamed said in 2004 that the syndicates were being accused of defrauding unsuspecting and inexperienced investors. He warned the public and small investors to be careful of public property syndication scams.

A public property syndication comprises a group of investors who pool their funds to invest in a company whose sole asset is a commercial, retail or industrial property.

These investors then share in the profits and losses, and enjoy the benefits of net rental growth through a share of income, together with any future capital growth that may be reflected by the increased value of shares.

But Mohamed said it was relatively easy to mislead consumers when marketing public property syndications.

"The property could ... be sold at an inflated price ... or investors could be left in the dark regarding the terms of the rental agreements."

Sharemax Investments is one of the largest companies to specialise in unlisted commercial property investments, despite receiving bad publicity in the past.

Willie Botha, Sharemax's managing director, said it had successfully launched 29 projects since 1999 and managed more than 15 000 property investors' assets worth more than R1.5 million.

Botha stressed that all of Sharemax's projects were properly registered with the registrar of companies before they were offered to the public.

He added that the revival of the property market had opened the door to excellent growth for Sharemax's investors. Botha said there was demand from certain listed and other companies to purchase several properties in Sharemax portfolio.

He said the first successful transaction of this kind was when an offer of R46.5 million was accepted for the Groenkloof Plaza shopping centre in Pretoria, which was registered in the name of its shareholders in May 2003 for R35.85 million.

The combined gross return for the investors in Groenkloof Plaza was 58.51 percent over two years and eight months.

Botha said offers on 19 other buildings in Sharemax's portfolio were being considered. They would provide additional capital growth of more than R200 million to its investment clients.

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