Saturday, September 20, 2014
SHAREMAX -SPECIAL INVESTIGATIONS - MONEYWEB
Author: Ryk van Niekerk
18 September 2014
Sharemax complaints surge after Bam determination
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Sars applies for liquidation of Sharemax and termination of the business rescue process.
The South African Revenue Service (Sars) has applied for the liquidation of Sharemax Investments and for the business rescue proceedings of the company to be terminated.
This follows a lengthy tug of war since 2012 between Sars and the directors of Sharemax and the Nova Group of Companies for the payment of R15.7 million of outstanding taxes.
Sars filed the application in June 2014, as it does not foresee the company being able to pay the debt.
Sars names, amongst others, business practitioner Dawie van der Merwe, former Sharemax directors Willie Botha, André Brand, Dominique Haese, as well as Nova Property Group chairman Connie Myburgh as respondents.
In a strongly worded affidavit Elle-Sarah Rossato contends on behalf of Sars that that the sole reason for placing Sharemax Investments into business rescue was to abuse the mechanism prescribed by the Company’s Act not to pay creditors.
“The inescapable inference is that creditors of Sharemax Investments were misled with a promise that R40 million would be coming their way, whilst the controllers of the first respondent had already decided to abuse the Company’s Act business rescue provisions.”
The R40 million refers to the amount earmarked to be paid to Sharemax Investments shortly after restructuring the investments, and was to be used to pay creditors.
Rossato said in the affidavit that the directors abused the Siegrist Determination as the reason for not paying the outstanding taxes.
Fais Ombud Nolantu Bam handed down the Siegrist Determination last year. Of all the determinations she handed down, it is the most controversial one, that not only held Siegrist’s financial advisor liable for his losses, but also the individual Sharemax directors.
The directors are appealing this judgment.
Rossato contends that Myburgh, the chairman of the Nova Group of Companies, said Sharemax couldn’t pay the amount to Sars due to approximately 500 new complaints lodged at the Ombud following the Siegrist Determination and because the appeal process against the determination has not been completed.
Rossato labeled this position as a “disingenuous abuse of the Siegrist Determination as a reason for the non-payment of the first respondent’s (Sars) debt.”
In total, approximately 2000 of the total 33 000 investors have lodged complaints against their financial advisors regarding investments in Sharemax.
Termination of rescue proceedings
As part of the liquidation process, Sars also applied for the termination of the rescue proceedings for Sharemax Investments, as the requirements for business rescue had not been fulfilled. Van der Merwe was appointed as the rescue practitioner in December 2011 and has since not filed a rescue plan, which according to the Companies Act should have been done within 25 days of his appointment.
Van der Merwe also used the Siegrist Determination as a shield for his non-compliance. Rossato said that this approach was “equally disingenuous”, as the Siegrist Determination was handed down on January 29 last year, more than a year after Van der Merwe’s appointment.
Sharemax and the directors have still not filed their answer to the liquidation application but instead filed a notice for joinder of Siegrist, alleging that Sars failed to include Siegrist as a respondent in their application. They contend that the application is “defective”, as Siegrist’s claim would be prejudiced if Sars’ application is successful. At most Siegrist will be a future creditor in the liquidation of Sharemax
Sharemax: Investors suffering
20 Sep 2010
Investors in The Villa, the largest property syndication undertaken by Sharemax to date, have reason to feel aggrieved over not earning any further interest on their investments.
Capicol, the developer using Sharemax investors’ money to develop The Villa, a super regional shopping centre in the east of Pretoria, says the interest owed to Sharemax’s investors has already been paid in advance for the whole period until the opening of the centre in 2011.
Investors should thus have still received their interest until at least September 2011, unless Sharemax did something else with the money.
First investors should have still received their money until December seeing that The Villa would have opened its doors this year already.
Last month, when it appeared that investors won’t be getting their money, Sharemax sent out a circular to inform investors that Capicol is experiencing cash flow problems and can no longer pay investors their interest.
Paul Kyriakou, head of Capicol, denied this categorically at a news conference in Pretoria last week.
“The centre’s construction has indeed grinded to a halt after Sharemax failed to lure further investment, but the interest on money borrowed from investors to pay for the construction done to date, has already been paid in advance to Sharemax,” he said.
He says Sharemax earned R75m with every prospectus issued. R15m of this money was held back for the promoters’ money, marketing costs (brokers’ commissions) and a contingency fund.
Capicol also reimbursed Sharemax with R10m in order to pay interest to investors for the whole period during which construction was ongoing, which left about R50m for construction work.
There are also some contradictions regarding the payment of interest. Capicol says the money has already been paid over to Sharemax.
Willie Botha, former Sharemax chairperson, said the interest for the full term has been held back in order to protect the interests of shareholders.
How Capicol paid the interest doesn’t matter anymore. Capicol and Sharemax both confirmed that interest has been collected for the whole term, and one should think that the interest should have been held in a trust.
When Botha, who is no longer chairperson of Sharemax, was later confronted about it, he said the money should have been used to pay the builders after negative press coverage closed the project’s investment tap. But this excuse does not hold water.
Sharemax has already received R1,59bn from investors, but only R1,056bn of this money has been paid to Capicol for construction work.
Work worth R1,2bn has already been completed, which means that the contractor GR Irons is owed another R150m.
Of the R540m received from investors and not spent on construction, R318m went to Sharemax itself.
Investors can’t complain about this as it is clearly stipulated in the prospectus.
However, there is another R220m left that leaves several question marks. The largest part of this is probably the interest component that Capicol has to pay to investors – a part was indeed paid out to investors.
But where is the interest for the rest of the term and what happened to the contingency fund which holds 3% of investors’ money?
These are some of the questions the South African Reserve Bank’s (SARB) statutory managers probably have to ask Sharemax’s management.
In the case of Zambesi Retail Park the picture is slightly different. This centre has already been completed and Capicol paid the rental income, from which investors were compensated, to Sharemax until August.
However, Capicol started holding back the rental income in August as Sharemax apparently weren’t fulfilling its contractual obligations to Capicol.
The agreement entailed – and this applies to The Villa – that the developer borrow money from Sharemax’s investors to build the centre, and that Sharemax companies in which investors invest their money would then buy the building from Capicol when the centre opens its doors.
Sharemax has been delaying the process for months as it owes Capicol and the contractor lots of money. This is why Capicol has closed the income stream tap.
The result is that investors in Zambesi have invested money in a property syndication that owns no properties. – David van Rooyen, Sake24