AllPay wins against Net1

2013-12-01 14:00

Absa subsidiary AllPay has emerged victorious in its latest and last round of legal wrangling with Cash Payment Services (CPS), a Net1 subsidiary, over a R10?billion tender to distribute welfare and social grants.

The Constitutional Court declared the controversial awarding of the five-year tender for all nine provinces constitutionally invalid. The move saw the Net1 share price lose a massive 40% on Friday after the surprise ruling.

But the court next year will hear submissions from all parties so it can decide on the correct remedy.

When CPS won the tender in 2009, AllPay immediately alleged foul play and took its competitor to court over the contract to distribute grants to more than 15?million children, pensioners, the disabled and war veterans.

In the North Gauteng High Court, Judge Elias Matojane declared the tender process illegal and invalid, but could not order to have it set aside as it would interrupt payments.

AllPay took its challenge to the Supreme Court of Appeal, where it was dismissed.

Anthony Norton, the legal representative for AllPay, who was predictably pleased with the outcome of the hearing, said there could be a range of potential outcomes.

He said the judgment was an important one.

“It is a precedent-setting judgment in terms of procurement and the way in which tenders are assessed,” said Norton.

Attempts to get a hold of the CEO of Net1, Serge Belamant, were unsuccessful but the company released a statement saying the “contract between the SA Social Security Agency [Sassa] and CPS to distribute social welfare grants to 10?million South Africans every month remains in full force and effect until the Constitutional Court determines the appropriate remedy”.

The BEE aspect of the deal has been a bone of contention throughout the legal battle.

Not only was Net1’s BEE deal put into jeopardy because the BEE consortium, Business Venture Investments, was unable to raise the $80.2?million (R816.7?million) capital needed to exercise a one-year share option – AllPay alleged that Sassa

did not evaluate CPS’ empowerment partners who were billed to complete 74% of the contract.

The Supreme Court held that it was not necessary for Sassa to evaluate the functionality of the empowerment partners, but the highest court in the land held a different view.

“Does this mean that an investigation into the propriety of empowerment credentials becomes necessary only after a complaint has been lodged, and that there was no obligation on Sassa to ensure that the empowerment credentials of the prospective tenderers were investigated and confirmed before the award was finally made? I think not,” wrote Justice Johan Froneman in the judgment.

In a previous interview with City Press, Belamant said they were looking at various alternatives to meet their BEE objectives, including selling or placing additional company shares on the market exclusively to black South Africans.

The court judgment is not Net1’s only headache – it is also being investigated by the US department of justice under the Foreign Corrupt Practices Act as well as the US Securities Exchange Commission. There have been no updates on the status of the investigation.

Net1’s share price took a hit on both the Nasdaq and the JSE as the market reacted to the news.

On Friday, the share price shed about 40% of its value to reach R73 from R123.?After a long process of moving from AllPay to CPS’ system, the major concerns in this case are the grant beneficiaries.

It remains to be seen how overhauling the tender will affect them. A decision on remedy will be made next year after the court has heard submissions from all parties.

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