More woes for Tubular as BEE partners apply for liquidation

The BEE partners in a subsidiary of Tubular Technical Construction (TTC) applied for provisional liquidation of the company after it failed to honour an agreement to pay R24 million in outstanding dividends. TTC had paid R11 million out of an agreed R35 million, but had fallen into arrears to the tune of R8.45 million, according to papers filed in the Pretoria High Court.

This adds to the Tubular group of companies’ lengthening list of worries. As Moneyweb previously reported, Tubular and associated companies are accused of paying bribes of R60 million into the bank account of Hlakudi Translations and Interpretation CC, owned by France Hlakudi, Eskom’s senior contracts manager of both the Kusile and Medupi power stations. He resigned shortly after the bribe allegations surfaced in November 2017.

Read: Eskom’s Hlakudi resigns

I did not take bribes – Hlakudi

In the process, TTC appears to have descoped Alstom and its subcontractor SPX Technology out of a nearly R1 billion contract for the supply and installation of air-cooled condensers at Kusile. Moneyweb also reported last year that the police were investigating this matter. Tubular won the contract for the supply of air-cooled condensers at Kusile for R708 million, but the contract value then escalated to R1.2 billion.

The application for provisional liquidation was brought by Revenue Management and Protection Solutions (RMPS), which owns 30% of Katenge Tubular Construction. The balance of 70% is owned by TTC. Katenge was formed in 2009 as a BEE company to secure construction contracts under the Tubular umbrella.

Katenge had two executive directors, Antonio (Tony) Trindade and Pieter Vorster, who had full control over the company’s day-to-day affairs and the company’s Standard Bank account, according to court documents. They were also executive directors of TTC.

Soon after its establishment, Katenge secured contracts worth about R1.6 billion from Murray & Roberts, Thyssen Krupp and Exxaro, on which it is claimed to have banked net profits of between R125 million and R150 million. The directors of Katenge were later informed that there was no profit for distribution, due mainly to a labour cost overrun of R293 million on the Exxaro contract. This was later found to be untrue, says Sam Tungande, director of RMPS, in an affidavit. The R293 million cost overrun was for Exxaro’s account “which fact made nonsense of the explanation that the labour overrun had caused the contract to yield zero profit”, according to Tungande’s affidavit.

He adds that when the directors of RMPS requested explanations for the lack of profits, they were initially granted access to company documents, but this was stopped when discrepancies were discovered. They then requested a forensic audit, but were told there were no funds for this. RMPS later discovered that an amount of R25 million had been taken out of Katenge and paid to another Tubular company, Tubular Construction Projects (TCP), without board approval.

RMPS then approached Edward de la Pierre of the SA Litigation Funding Company (Salfco) to investigate possible irregularities at Katenge. It was at this point that TTC applied for the liquidation of Katenge “on the false allegation that (Katenge) had been indebted to it to the amount of R32 million”, says the liquidation application. The attempted liquidation failed, and agreement was reached last year between the disputing parties. This resulted in in TTC agreeing to pay RMPS R35 million in outstanding dividends.

Tungande also claims that TTC diverted a R500 million contract from Kalagadi Manganese away from Katenge, and so deprived it of its 30% share in a R100 million profit. To avoid the need for drawn-out litigation, RMPS and Salfco decided to enter settlement negotiations with TTC, which agreed in October 2017 to pay RMPS R35 million in outstanding dividends as a full and final arrangement.

Also in the court papers, TTC, after paying R11 million of the R35 million it agreed to pay, says it stopped paying dividends to RMPS on the grounds that the agreement was illegal and unenforceable, being a product of extortion on the part of RMPS and others. This is denied by Tungande. TTC also claims the agreement to pay RMPS had been entered into as a result of threats to undermine the viability of TTC, and that RMPS had allegedly disclosed the terms of the agreement “contrary to the undertakings given therein”.

“The alleged extortion by RMPS is untrue. The settlement agreement was concluded to pay RMPS its share of the profit which had been concealed from RMPS through TTC’s fraud,” says Tungande’s affidavit.

TTC has proposed arbitration as a means to settle the question as to the enforceability of the settlement agreement reached last year. Tungande says this is a delaying tactic by TTC. Either it pays RMPS the amount of R35 million as determined in the settlement agreement or, if the agreement is unenforceable, it pays the true profit.

In correspondence dated February 1, 2017, from Werksmans, TTC’s attorneys, it is claimed that Katenge did not have a contract with Kalagadi Manganese, nor did it perform any work or earn any revenue from this project. Yet Tungande’s affidavit makes clear that it was Katenge, not TTC, that tendered for the Kalagadi project. Further admission that Katenge was a rightful claimant to any profit from the project was the fact that the settlement agreement of October 2017 between the parties included profit from Kalagadi – contrary the assertions by TTC.

Tungande says any attempt to recover monies owed through the normal debt recovery process could take years. Hence the only valid remedy available to it is to apply to the court for provisional liquidation of TTC.

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