Roy Cokayne
4 minute read
9 Jun 2020
7:33 am

Group Five shareholders launch bombshell legal action

Roy Cokayne

They are calling for business rescue to be converted to liquidation.

At least 3 000 jobs will be saved, and losses to creditors will be around R5bn less than under a liquidation. Image: Moneyweb

Forty-eight shareholders in Group Five have launched a Johannesburg High Court application to set aside various resolutions passed prior to the group going into business rescue, for alleged lack of compliance with the Companies Act and to convert the business rescue to a liquidation.

The identity of the 48 shareholders who have launched the application was not disclosed on Monday by business rescue practitioners (BRPs) Peter van den Steen and Dave Lake of Metis Strategic Advisors.

The BRPs said Werksmans Attorneys will be opposing the high court application on behalf of the BRPs and the company “given the orders that the shareholders seek and the impact that this will have on the business rescue proceedings of the company, which is currently being implemented in terms of the approved business rescue plan”.

Listing in the wind

The listed construction and engineering group, which was established as an amalgamation of five companies in 1974, was placed in business rescue and its shares suspended on the JSE in March 2019.

Group Five’s listing is to be removed from the JSE on Friday.

The BRPs said the 48 shareholders are seeking, among other things, that the court set aside:

  • The resolution adopted by the shareholders at an AGM held by the company on November 7, 2017, which was 16 months prior to the commencement of the company’s business rescue proceedings, in terms of which the company was authorised to provide direct or indirect financial assistance to one or more related or inter-related companies of the company for the alleged lack of compliance with section 45(3)(a)(ii) of the Companies Act;
  • The resolutions of directors of the company adopted on May 2, 2018, in accordance with Section 74 of the Companies Act for the alleged lack of compliance with sections 45(3)(a)(i) and/or (b)(i) and/or (ii) of the Companies Act, and/or section 45(5) of the Companies Act;
  • The guarantee provided by the company to Standard Bank of South Africa, Absa Bank, FirstRand Bank, HSBC Bank and Boundary Terraces No 14 Proprietary Limited guaranteeing the financial obligations owed by Group Five Construction to them; and
  • For the business rescue proceedings of the company to be converted to liquidation proceedings in terms of section 132(2)(a)(ii) of the Companies Act.

The BRPs added that attorneys representing the shareholders initially addressed a letter to them during July 2019 requesting a substantial amount of information related to, among other things, the financial and governance affairs of the company prior to the commencement of business rescue proceedings.

Information supplied

They said Werksmans Attorneys, on behalf of the BRPs, has been engaging with the shareholders’ attorneys ever since and has provided them with the information the shareholders were entitled to receive in terms of the Companies Act.

The BRPs said the shareholders’ attorneys subsequently challenged the validity of the bank guarantee.

Group Five’s business rescue plan stated that the company and several other companies within the group, including Everite, guaranteed the repayment of a R650 million bridge loan as well as other financial obligations of Group Five Construction to the financial guarantee providers.

Following the termination of the Kpone power plant project in Ghana in November 2017, the payment of $106.5 million (then about R1.5 billion) was demanded by Cenpower Generation Company from the financial guarantee providers.

The banks paid the full value of bank guarantees in issue of $106.5 million to Cenpower, which resulted in Group Five becoming indebted to these financial guarantee providers.

The BRPs said on Monday that in responding to the challenge to the guarantee, they and Werksmans Attorneys sought the advice of senior counsel regarding the validity of the special resolution and the board resolution in terms of which the guarantee was authorised and issued.

Resolutions ‘did comply’

“Senior counsel was of the opinion that the special resolution and the board resolution complied both in substance and form with the provisions of the Companies Act.

“Accordingly, the BRPs maintain that the guarantee issued in terms of the special resolution and board resolution is not void and not capable of being set aside,” they said.

In terms of Group Five’s business rescue plan that was approved by creditors in September last year, the group’s listing on the JSE will be terminated and the company wound up but between 3 000 and 3 500 jobs saved through the restructuring and sale of businesses and contracts to new owners.

The BRPs believe the shortfall or losses to creditors from the business rescue processes would be R5 billion less than under a liquidation.

On successful implementation of the business rescue plan, secured creditors are expected to receive distributions of between 66 cents and 78 cents in the rand compared with 18 cents forecast in a liquidation.

Concurrent creditors (people and entities with unsecured claims) are expected to receive distributions of between nine cents and 20 cents in the rand compared with the 3.4 cents forecast in a liquidation.

It is not anticipated that there will be any return to the shareholders of Group Five Limited.

Brought to you by Moneyweb

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