The sale of Koornfontein coal mine – one of the Gupta companies now in business rescue – has hit a legal obstacle: losing bidder Lurco Group is asking the High Court to interdict the business rescue practitioners from selling the mine to another bidder, Black Royalty Minerals (BRM).
Lurco submitted two bids for the mine, both for R500 million. The initial bid was backed by funding from Central Energy Fund (CEF) subsidiary African Exploration Mining and Finance Corporation (AEMFC). CEF is owned by the state. Lurco also submitted an alternative bid, independent of AEMFC, with funding from Ocean Partners Holdings.
Lurco says the business rescue practitioners (BRPs) unlawfully changed its business rescue plan in October when they demanded that the full purchase price for the Koornfontein assets be placed in a South African bank account within five days. Lurco was unable to meet this deadline as funds had to be shifted from an overseas account, for which regulatory approval was required.
Having missed the deadline, BRM was anointed as the preferred bidder. The BRM bid, at about R300 million, is substantially lower than Lurco’s. Lurco’s R500 million offer was far superior to other bids received – which ranged from R217 million to R300 million – according to Lurco chief operating officer Aubrey Chauke’s affidavit now in front of the court.
The fact that the BRPs were now selecting the inferior BRM bid meant creditors and employees would be deprived of 60c in the rand.
Had Lurco been made aware that the full purchase price would have to be placed in a South African bank account within five days, it would have amended its bid accordingly.
Chauke’s affidavit says Lurco submitted two bids for Koornfontein in compliance with the conditions outlined by the BRPs in July. In late September, Lurco was advised that its alternative bid had been selected as the qualifying bidder subject to the payment of an initial amount of R45 million into an escrow account.
Legitimate expectation
Chauke says Lurco had legitimate reason to expect that it would be the purchaser of the mine on terms outlined by the BRPs in September.
Attorneys for the BRPs, Smit Sewgoolam, wrote to Lurco on October 26 explaining that the amended bid condition that the full purchase price be placed in a South African bank account within five days was imposed by the mine’s “affected persons” by way of a vote that was passed on October 18. The BRPs were therefore bound by the adopted rescue plan and were obliged to implement it.
Lurco counters that the BRPs are bound by the Companies Act to adopt the original business plan of October 4, and not the amended one of October 18. Chauke says there is no provision in the Companies Act for the amendment of a business rescue plan after it has been approved and adopted.
The court papers suggest Eskom is a “contingent post-commencement creditor” of Optimum Coal Mine, also under business rescue, for R1.07 billion, being penalties levied by Eskom for non-delivery of coal. Lurco claims this applies to Optimum, not to Koornfontein, which therefore reduces Eskom’s voting rights in terms of the business rescue plan.
In this case, the rescue plan could not have received more than 75% of support from creditors as required by the Companies Act.
The BRPs are therefore bound to implement the original business rescue plan which did not require the full purchase price to be placed in a South African bank account within five days.
Responding to the court application, business rescue practitioner Louis Klopper says the Lurco application will be opposed.
“As BRPs, we are compelled to follow the instructions of creditors, and these were the conditions we are mandated to execute. Lurco is within its rights to bring this application, but we are concerned that this could delay the recommencement of operations at Koornfontein.”
Brought to you by Moneyweb
