Bizarre battles in Gupta rescue
A complex web of interests and legal cases has enveloped the business rescue of eight Gupta-linked companies as the various parties view one another with deep suspicion while they try to figure out who the real crooks are.
At the centre of the strange tussle are the business rescue practitioners, who were appointed to save the embattled Gupta empire shortly after Cyril Ramaphosa was sworn in as president and Ajay Gupta was declared a fugitive from justice.
The rescue practitioners have faced no fewer than 42 legal challenges since they were appointed. Although some are ongoing, most cases have gone in the practitioner’s favour. Four were withdrawn. Many of these legal jabs come from Gupta affiliates, seemingly in an orchestrated effort to frustrate the rescue process.
But in one case — which is set down to be heard in court next week — the state-owned Industrial Development Corporation (IDC) wants the business rescue practitioners to be removed because of concerns about their competence and independence.
The eight Gupta companies filed for business rescue after the only bank that would do business with them, India’s Bank of Baroda, announced its intention to withdraw from the South African market by March 31.
But it was more likely a warning from company auditors that the directors would be held personally liable for reckless trading if they did not put the companies into rescue. By the end of February, Louis Klopper and Kurt Knoop had been appointed as practitioners. And the court applications began to roll in.
The number of business rescue practitioners has now increased to four since negotiations with the National Union of Mineworkers, which selected two additional practitioners to assist in the rescue of certain companies.
Klopper told the Mail & Guardian that the legal barrage is causing more sleepless nights for the legal team than for the business rescue team, but he conceded it was an unwelcome distraction from the significant task at hand.
The companies in business rescue include the Optimum and Koornfontein coal mines (which, with Eskom, featured in the public protector’s damning State of Capture report), as well as Shiva Uranium, in which the IDC has invested heavily.
The IDC loaned R250‑million to Oakbay Resources to acquire the Shiva Uranium mine. The interest grew to a further R250‑million and the IDC agreed to convert that portion into equity. Almost the entire capital amount, save R37.5‑million, has been repaid but the equity stake is worth little now that the share was been suspended and there is also a probe into share price manipulation.
In its founding affidavit, the IDC requests the court to remove the business rescue practitioners, citing concerns about the rescue team’s competence and independence.
According to the document, the IDC is Shiva Uranium’s single largest creditor and also its only secured creditor. Its loan agreement with Oakbay provided for business rescue proceedings and, in this scenario, secured the IDC’s interests against Shiva’s movable assets — including debtors. Upon learning that the rescue practitioners planned to secure funds from debtors and dispose of assets to pay bills, the IDC obtained an order to confirm its security.
But the IDC told the M&G it did not want to divert the mine’s income, given the corporation’s mandate of job creation. Instead, it allows the rescue practitioners to use its security to fund the payments of the business. The corporation, however, must approve every single payment.
The affidavit described the corporation’s frustration with the rescuers.
At a meeting on March 8, “it became evident to the applicant that the practitioners have failed to take control of the first respondent [Shiva Uranium], had no knowledge of the first respondent’s business and affairs, and were unable to answer basic questions relating to the first respondent and its business”, the affidavit said.
Requested information was also not forthcoming. “The practitioners failed to furnish all the information and documentation which they undertook to furnish” by March 9.
Yet the corporation was confronted with last-minute urgent requests to approve payments, and some had been processed without the IDC’s consent — which, it says, is in violation of the court order it obtained.
The IDC expressed further concern that the practitioners have no independent people situated at the mine.
In an email annexure submitted to the court, dated March 12, it is clear that Ronica Ragavan — acting chief executive of Oakbay and a key figure in the Gupta empire — remained involved in running the business.
Klopper told the M&G that Ragavan had only been involved at Shiva at the very beginning of the rescue to provide information on the business but that, in any case, it was in accordance with the law that the practitioners in effect replaced the chief executive but the management team often remained and assisted in a rescue.
Eric Levenstein, head of insolvency, business rescue and restructuring at Werksmans Attorneys, concurred. “Although the [Companies] Act states that the [business rescue practitioner] has full management control of the company in substitution of its board of directors and pre-existing management, in practice the [practitioner] works quite closely with the board and management in the process and development of the business rescue plan.”
Suspicions have been raised that the companies filed for business rescue to benefit the Guptas. It would overcome transactional banking problems and, when assets were sold, the owners would receive the remaining proceeds.
Klopper said that from an accounting perspective, any proceeds left following a sale and the payment of creditors would go to the holding company, Tegeta Exploration and Resources.
But an affidavit the rescue practitioners filed with the court on May 11 in a separate case depicts a strained relationship between themselves and the directors of the eight Gupta companies.
In this case, Optimum coal mine and George van der Merwe, who claims to be the chief executive and creditor of the Optimum colliery and its coal terminal, are also seeking the removal of the practitioners. In the document, Knoop said: “It has become abundantly clear in the past three weeks that members of the pre-existing management of various companies in business rescue have resolved to partake in a concerted and well-devised stratagem to attempt [to] litigate the [business rescue practitioners] into submission.”
According to the practitioners, their relationship with the directors of the various companies was cordial until they began investigating a sale agreement with little-known company Charles King SA — a R2.9‑billion transaction suspected to be structured in a way that the Gupta family, and not the companies, would receive the proceeds.
“The business rescue practitioners have since cancelled the agreement and the transaction is subject to Reserve Bank investigation,” Knoop said in the May 11 affidavit.
The practitioners said their attempt to implement contracts for prepurchases of coal was also a bone of contention. “These investigations and the new operational arrangements clearly did not suit the interests of the Guptas and their lackeys (the pre-existing management).”
The rescue practitioners also note that they uncovered that VAT refunds due to Optimum mine, as much as R200‑million, had been diverted to another account, allegedly on the instructions of Ragavan.
This week, Westdawn — another Gupta-linked mining investment company — was permitted by the courts to join the IDC’s applicatiown to remove the business rescuers. The IDC says it is uncomfortable with this association, noting that “the optics are not good”.
And who will pay the business rescue practitioners’ legal bills? “So far, the amount is zero,” said Klopper said, “So far, all the orders gone against them.”
Gupta affiliates have also interdicted creditors’ meetings at Shiva. One such meeting intended to happen this week will now only take place once the IDC’s case has been heard.
When the creditors’ meeting does happen, two offers to purchase the mine will be discussed. One is for $35‑million, tabled by BEK Holdings. Another bid for $50‑million, tabled by Neotoil Enterprises Incorporated, has been met with suspicion by the rescue practitioners as there is little information available on this Dubai-based company.
The other companies are unlikely to be sold soon, said Klopper. Although they have good cash flows, what the practitioners found on the ground was an “entirely different situation”, said Klopper, who noted the assets had been poorly maintained. “They need to be resuscitated before they can be sold,” he said. “I cannot foresee or foretell at this point in time what anybody is going to offer.”
The business rescue is unlike any Klopper has ever experienced before, he said. “The environment is just so toxic … there’s a huge amount of misunderstanding and wrong perceptions.”
The IDC’s case to have the practitioners removed will be heard in the high court in Pretoria on May 31. In a separate matter, the corporation is suing the Guptas’ Oakbay Resources and Energy Limited for some R287‑million owed to it in light of the apparent manipulation of the share price, the valuation of which the IDC had relied on when deciding to convert the loan interest into equity.
No comment had been received from the Gupta companies under business rescue by the time of going to print.