When a 19% return becomes 1%

The dividend will be paid monthly and payments are expected to start in January 2016.

Bridge was placed into business rescue late last year after risk aversion to the unsecured lending sector – exacerbated by the collapse of African Bank in August 2014 – meant it failed to secure institutional funding.

Business rescue practitioner, George Nell says he will consider a forensic report on the company’s financials before seeking legal opinion on whether he should file for the termination of business rescue proceedings so that the compromise plan can go ahead. A decision should be made this week, Nell says.

In terms of the new plan, creditors – currently debenture holders – will be converted to preference shareholders. Bridge plans to buy back their shares when profits allow, probably only from 2018.

Whereas interest paid on debentures is fixed in terms of a contract (and in Bridge’s case represents a R1 billion liability), share payouts are dependent on how much profit a company makes.

The fact that creditors have swapped debentures for shares thus has an immediate impact on the company’s insolvency, says Nell, who previously applied for Bridge’s liquidation because liquidity had dried up.

Chairperson of the creditors committee, Dr Reuphillan Kasselman says the plan will put an end to the business rescue process, which will save on “excessive legal and professional costs”.

Improving efficiency and “right sizing” the business based on the smaller loan book that it is servicing will cut monthly expenses from the current R11 million to R5.8 million, according to Kasselman, while a Cape Town-based hedge fund is providing R40 million in funding to Bridge over an eight-month period.

She would not be drawn on gross loans extended by Bridge each month, but said the current value of the debtors’ book is between R154 million and R186 million.

Last month, 80% of creditors voted in favour of the compromise plan, which includes a settlement agreement with the Aldum family, who were the controlling shareholders in Bridge until recently.

“In terms of this agreement, amounts owed to the Aldums by Bridge and amounts owed by the Aldums to Bridge were offset,” says Kasselman. She explains that, when accounting for inter-company loan accounts and the Aldum’s own debentures, there is a R24 million loan still owing to the Aldums by Bridge that has been offset to zero.

The Aldums now hold a 29% stake in Bridge. “In terms of the settlement agreement, the Aldums have put in writing that they will give their full cooperation in all investigations and that, if the company is liquidated within a year, the agreement becomes null and void,” says Kasselman.

Criminal charges laid

Creditor Maurizio Decinti believes the compromise plan protects the interests of the Aldums to the detriment of creditors. The compromise plan makes no provision at all for holding past irregularities to account, Decinti claims in court papers.

“It is our honest belief, following our own interim forensic investigation, that the Aldums are linked to a complicated matrix of corporations which they use as their own vehicle to fund their lifestyles,” Decinti alleges, maintaining that Bridge was deliberately managed dishonestly.

The Aldum family is connected with a number of companies operating in or with historic ties to unsecured lending, including OneLaw, Bridge, Cambist and Flemix & Associates.

A chartered accountant, Decinti personally invested R5.5 million into Bridge. Moneyweb understands that he invested significantly more into Bridge on behalf of other people.

Kasselman counters that the compromise plan in fact provides independent forensic auditor, Andre Prakke with a mandate to perform an investigation into the company’s financials.

“If the Aldums have shuffled money legally or illegally, we want to know. This is not going to be swept under the carpet,” she tells Moneyweb.

“If any evidence comes up from Prakke’s report, the right steps will be taken, and if that entails giving evidence to the Hawks then that is what we are going to do,” notes Kasselman. “But if the Aldums didn’t steal money, that must also come out.”

Decinti says his attorneys have already reported concerns of “gross abuse of company funds by the Aldums and related parties” to the Hawks and the Commercial Crimes Unit. Moneyweb did not receive a response from the Hawks on the matter before publishing.

Questionable transactions

Prakke will need to scrutinise a guarantee agreement that Bridge provided to Aldum-owned microlender, Onecor after the South African Reserve Bank (Sarb) during the course of 2011 found that Onecor was conducting the business of a bank and ordered it to repay investors. According to Nell, this rendered Bridge “insolvent from its inception”.

Questions have also been raised over the manner in which shares and loans were valued on the day that the Bridge Credit Group of Companies was incorporated as Bridge Corporate in December 2012. In addition, audit firm Mazars found that shortly before Bridge applied for business rescue last year, irregular share buybacks took place that benefitted Aldum family trusts.

A total of 1 600 investors, predominantly Afrikaans pensioners, invested some R1.6 billion into Bridge and Onecor.