One Gupta firm tries to liquidate another, hits snag in high court

Last week the Johannesburg High Court denied former Gupta company Westdawn’s attempt to stop publication of a revised business rescue plan for Optimum Coal Mine.

It’s a case of one former Gupta-owned company trying to liquidate another. Westdawn has a claim of more than R112 million against Optimum, and last week brought an urgent application before the high court to stop Optimum’s business rescue practitioners (BRPs) publishing a revised rescue plan on the grounds that the mine is factually and commercial insolvent, and that the BRPs acted with malice to thwart its winding up application.

Judge Raylene Keightley wasn’t buying it. She could see no evidence of malice, nor did she grant the urgent order to stop publication of the rescue plan. However, the winding up application will be heard separately in November, while the business rescue process continues in parallel.

Bouwer van Niekerk, attorney for the BRPs, says the judgment means all creditors will now be given an opportunity to study and vote on the revised rescue plan. Creditors will vote on the revised plan on Monday (September 28).

A total of eight Gupta companies were placed in business rescue in 2018 (though Westdawn was not one of them) after local commercial banks and Bank of Baroda withdrew banking facilities over suspicions of the Guptas’ involvement in state capture. The withdrawal of banking facilities prevented the Gupta companies from paying staff and creditors, forcing them into business rescue.

Westdawn provided mining services, labour and equipment to other companies in the group. In an affidavit before the court, joint liquidator Thea Lourens says prior to the business rescue of the various companies, Westdawn advanced R202 million to another Gupta company, Islandsite, which was used to acquire plant and equipment for mining at Optimum.

Westdawn originally applied for the winding up of Optimum in November 2019, but the matter was referred to the commercial court for hearing.

‘Apparent collusive dealings’

Lourens says in an affidavit that since then, new facts had come to light relating to “the apparent collusive dealings between the business rescue practitioners of Optimum and various affected parties in the estate to the general body of creditors …” and the inability of the BRPs to rescue the company either by selling its assets or resuming trading activities.

The BRPs opposed the liquidation attempt, saying it lacked merit and urgency. It has also asked the court to strike out “vexatious” allegations against the BRPs, who are under a statutory duty to publish a rescue plan and convene a creditors’ meeting – something they say Westdawn is trying to circumvent.

Said Optimum BRP Kurt Knoop in his replying affidavit: “Westdawn’s voting interest in relation to the business rescue plan is a mere 2.61%. This court would clearly want to know at the hearing of the winding up application what the attitude is of the remaining 97.39% of [Optimum’s] creditors in respect to the plan.”

Knoop also argued that Westdawn had attempted to mislead the court as to its reasons for seeking Optimum’s liquidation, as the rescue of the coal mine is holding up the liquidation of Westdawn itself.

There were several offers to purchase the mine, though when these fell through, Templar Capital (to which Centaur had ceded its claims) made an offer which involves the conversion of debt to equity.

Optimum Coal Mine is currently on care and maintenance at a cost of about R10 million a month.

A key bone of contention for the Westdawn liquidators is Eskom’s claim for R1.27 billion which was reduced from about R5 billion after arbitration, with Eskom’s voting weight being fixed at 24%. Westdawn says the BRPs were then required to publish an amended rescue plan, which was not done. The BRPs replied that the revised rescue plan is in the process of being finalised.

‘Undue preference’

The Westdawn liquidators also objected to the settlement in full of a R1 million claim from another Gupta company, Oakbay, which they say represents undue preference of one creditor over another and removes Oakbay as a potential obstacle in arbitrating a settlement with Eskom, the largest creditor. Westdawn claims the costs of this arbitration have been billed to creditors.

The BRPs argued the claim of undue preference does not apply as Optimum has not been liquidated. Judge Keightley did not address these issues, which will be dealt with separately in a later court hearing.

Westdawn also raises questions as to how Centaur went from having no significant claim against Optimum to being one of the largest creditors as a result of penalties levied for failure to meet monthly coal supply thresholds.

Templar, which has acquired Centaur’s claims in Optimum, is now the front-runner to acquire Optimum.

One of the scenarios being considered for the acquisition is the conversion of its debt into equity, with creditors only likely to see cash six years after the mine recommences full production.

Westdawn joint liquidator Chavonnes Cooper has claimed the Companies Act is unconstitutional as it allows business rescue plans to be accepted on a vote by creditors, which she claims can be manipulated by the practitioners.

In a liquidation process the meeting is led by an independent third party from the Master’s office and creditors are afforded an opportunity to object to the treatment of their own or another party’s claim. Over and above that, there is a legal obligation on liquidators to investigate claims.

The BRPs argue that Westdawn was abusing court processes by bringing an urgent application and interfering in the rescue process.

They say it is up to the majority of creditors to decide on the best way forward for the mine.

The story has been corrected and updated to reflect the fact that Templar Capital (which has acquired Centaur’s claims in Optimum) has made an offer for the mine which involves the conversion of debt to equity. The previous version incorrectly stated that Centaur had made this offer. 

On Monday September 28, 2020, subsequent to publication, creditors voted 87.7% in favour of the revised business rescue plan.

• This article was republished with permission from Moneyweb.

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