Mercantile Bank sale unlikely to be affected by conspiracy allegations

The sale of the South Africa-based Mercantile Bank by Portugal’s Caixa Geral de Depósitos is unlikely to be affected by allegations of conspiracy brought against it by the creditors of Alert Steel, a now defunct wholesaler and retailer of steel products, building material and hardware.

The bank – which called on a loan granted to Alert Steel – has refuted the allegations, saying its actions were permitted in terms of the loan agreement and the law, and that its actions were necessary to protect its own interests.

“The whole thing is around collusion,” said Mercantile Bank chief executive Karl Kumbier. “What is the incentive for a bank to collude with someone to bring down a business? It is absolute rubbish! What would we gain? Why in the world would we lend the company money with a view to bring it down? We lent the company money hoping that things would go forward and that we’d have a fantastic customer going forward.”

According to Kumbier, the matter will have no bearing on the sale of the bank other than to influence the structure of any potential deal. The sale process is due to take place after the Portuguese government signs a decree into law permitting the sale of what constitutes a state asset later this month.

He said that the bank would defend the claims rigorously and that the plaintiffs “don’t have a leg to stand on”.

The plaintiffs, Alert Steel and its credit provider ArcelorMittal South Africa, are seeking R351 million from Mercantile Bank and Rayhaan Hassim, a shareholder of Alert Steel.

They allege that in May 2014 Hassim, along with directors of the company and Mercantile Bank, conspired to devise and implement a scheme to transfer the company’s business and assets to new company held by Hassim, to pay Alert Steel’s loan liability to Mercantile Bank in full and to put the company in liquidation.

“The purpose of the scheme was to appropriate all the company’s assets for the benefit of Mr Hassim and Mercantile Bank at the expense of the company’s other creditors,” court papers show.

Alert Steel was liquidated in July 2014 and the transactions influencing the matter date back to 2013, the period during which Alert Steel was restructured and the company required financial support.

According to court papers, Mercantile Bank became involved with Alert Steel when it extended a R104 million loan to the company in March 2014. The papers state that Hassim caused the company to enter into the agreement for the purpose of paying off a loan, previously granted by a firm in which he was the sole shareholder.

As alleged in the court papers, after Hassim’s other companies withdrew support for Alert Steel Mercantile Bank “unlawfully purported to cancel their loan agreement and demanded that the company immediately repay the outstanding balance of the total loan in an amount of R104 million”.

Kumbier disputed the claim, saying Mercantile Bank had had a proper, legal loan agreement with the company. He said it called on its loan when the business no longer appeared to be viable, following the departure of key executives including the CEO and CFO, and shareholders were no longer able to support the business, which constituted a breach of the loan agreement.

He added that the business went into business rescue for two months and he had personally participated in meetings with its creditors as well as with listed companies, who were interested in buying the company at the time.

In July 2014, the court granted a provisional liquidation order for Alert Steel, following an urgent application by CGIC. Thereafter, it is alleged that Hassim’s shelf company West Lake offered to purchase all the company’s assets for R100 million.

The plaintiffs allege that one of Alert Steel’s provisional liquidators Chris de Wet undervalued the company’s assets and made “material misrepresentations” to the master of the court in his application to have the forced sale approved. It is said that the sale was only beneficial to Mercantile Bank and highly prejudicial to the company’s other creditors.

Alert Steel is seeking to have a perfection agreement between itself and Mercantile Bank set aside, it is also seeking to R251 million from Hassim and the bank and a further R100 million from the bank.

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