Sharemax rescue hits speed bump

Sharemax rescue hits speed bump

Court decision will take place next year, giving dissenters time to argue their case.

Investors in Sharemax’s syndication companies will have to wait at least another month to hear if a proposed rescue plan will receive court approval. The North Gauteng High Court has delayed its decision until late January to allow dissenting investors time to argue why they believe the plan is flawed.

This means that the immediate threat of liquidation has not yet been removed. It is generally agreed that a liquidation would crystalise billions of rands worth of losses for Sharemax’s 35 000 investors. These investors, many of them elderly, have placed roughly R4.5bn in Sharemax’s various syndication schemes.

The rescue plan was presented to Judge Bert Bam this week for court sanction. According to those familiar with the process, court approval would have been virtually guaranteed, provided the plan was unopposed. However, an advocate representing a small handful of investors arrived in court and opposed the plan.

Attorney Chris de Beer, who represents the dissenting investors, explains it is not their intention to liquidate the Sharemax syndication companies. They argue, however, that proper process was not followed, and that the rescue plan seeks to legalise an illegal scheme.

The Sharemax rescue plan has been accepted by the vast majority of investors who voted. It has been reported that of the investors who voted, more than 99.9% were in favour of the scheme. Voter turnout is estimated at nearly half of all Sharemax investors.

If the rescue plan receives court sanction, the directors of the syndication companies will be free to begin the hard task of returning money to investors. If it fails, the Reserve Bank has indicated that it may have no option but to liquidate the various syndication schemes. If the Reserve Bank does not apply for liquidation, it is almost certain that someone else will.

But if the court approves the rescue plan, investors are by no means out of the woods. The scheme would provide Sharemax investors with a “clean”, legal structure, but it does not remove their financial problems.

The rescue plan proposes that investors are issued with new debentures that comply with the Banks Act. The repayment terms of each debenture will depend upon the health of the underlying syndication. The repayment terms, which are not open to public scrutiny, have been based on a fair and reasonable opinion obtained from BDO Corporate Finance. This opinion is, in turn, based on valuations and financial projections performed by DP Cohen Consulting.

If the syndication companies fail to meet their debenture promises, it may open them to fresh liquidation threats.

In the case of Sharemax’s two largest syndications, Zambezi and The Villa, much funding is necessary to complete the projects. These schemes together account for about R2.5bn of investors’ funds,

Investors have received half of the ownership of Zambezi, but must pay tens of millions to developer Capicol to receive the other half. With The Villa, investors have acquired just 30% of the massive unfinished shopping centre. Developer Capicol has 20%, and the remaining 50% has been reserved for anyone brave and rich enough to commit funds to finish the project.



Denny Crane

Denny Crane
It's not me ... yet. Denny Crane from the TV series Boston Legal. Click on picture if you're not sure who he is!