New hope for some Sharemax investors

Johannesburg - The first scheme of arrangement aimed at sorting out the chaotic finances of the Sharemax group and getting investors’ money back has been provisionally approved by the high court.

It is hoped that the scheme of arrangement in terms of Section 311 of the Companies Act will bring relief for Sharemax investors who are invested in the Zambezi Retail scheme and currently receiving no income from their investments.

The court has ordered that meetings should be convened to give investors and other creditors the opportunity to vote on the proposals.

If the proposals – which should lead to investors ultimately getting all their money back – are accepted the scheme will be finally ratified by the court.

Details of the exact content of the scheme of arrangement will be sent to all investors within the next three weeks.

The scheme of arrangement presented to court is an agreement concluded between Sharemax, Capicol (the developer of the centre) and Capicol’s creditors, including the builder.

Once the scheme is ratified by the court, no party can change or break the agreement. The only way this could happen would be if the Sharemax investors and other creditors turned down the proposed agreement.

Capicol built the Zambezi Retail shopping centre with money Sharemax had raised from investors, and was to have sold the centre back to Sharemax after completion.

The transfer never took place because it was decided in arbitration that Sharemax still owed Capicol R64m.

Consequently Capicol stopped paying interest to investors, giving rise to a counter-claim from Sharemax.

The agreement currently submitted to court provides for the abandonment of all claims, with Capicol retaining the centre.

In time Capicol will repay the investors, according to an agreed formula, from the rental income – and the assumption is that investors will get their money back.

The structure according to which investors have invested will also be amended so that it ceases to be in contravention of the Banks Act.

But Capicol still owes the contractors for construction work, which could lead to liquidation – but the agreement also provides for this.

Capicol has found an investor that will pay the builder and invest further money in the centre to improve its income potential. This investor has also been drawn into the agreement.

Sharemax’s board of directors said a decision had been taken not to insist that Capicol transfer the centre to the investors, because Sharemax’s original management and Capicol had an agreement giving Capicol the right to buy back the centre at market value within three years.

One of the three years has passed, which implies that Capicol will be able to buy the centre for a song in two years' time if the rental income does not improve, causing investors even bigger losses.


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