Gordon: CNA was insolvent

Johannesburg - Central News Agency (CNA) was commercially insolvent by the middle of this year, Gordon Kay and Associates co-director Mark Gordon admitted in Johannesburg on Tuesday when he faced in-depth questioning in the sec 417 investigation into the group's affairs.

"But many companies find themselves in the same situation. It is well known that creditors sometimes act aggressively to obtain the best advantage for themselves."

In reply to further questions by Adv Chris Eloff, who is heading the interrogation process on behalf of creditors, whether he agreed that CNA's assets were less than its liabilities, Gordon said that if CNA's business was to be terminated, this would be the case.

"But not if it were to remain an operating business entity. Then the contingency liabilities would not leave it virtually insolvent," Gordon said.

Tuesday's proceedings were characterised by sharp exchanges between Eloff and Gordon. Some of those present laughed aloud at one stage when Gordon gave his answers to some of the questions. This follows evidence given earlier that GKA pushed no assets or capital into CNA after GKA bought CNA from Wooltru for R192m in February 2001.

The conditions of the transaction were that GKA would pay R30m as an initial payment, and a further R54m shortly after. Gordon admitted on Tuesday that GKA had no assets and that he earmarked some of his "personal assets" as part of the transaction.

Initially the assets of one of Gordon's companies, the Africa East Coast Corporation which is registered in Tanzania, would be sold to pay for the CNA transaction. Gordon said he could not remember who the intended Indian buyers were or when they made a clear offer.

"The reason why we formed GKA was so that the management, which finally owned 25% of the company, could also buy into it. With the Tanzanian company we would not have been able to do so."

Gordon testified he was fully confident the initial R30m could be paid when GKA took up its shares in CNA. Several companies, including Allianz and BoE, were interested in providing GKA with capital, according to Gordon. But he could not provide any documentation for this and later admitted the payment was done by means of a subordinate loan to Wooltru.

He also admitted that if GKA had not subsequently taken R20m out of CNA's cash flow for part payment for the transaction, the pressure on CNA's cash position would not have occurred later.

"What I did was not illegal. Why do you keep harping on it?" Gordon asked Eloff.

Gordon also admitted he could not pay R30m to Wooltru. "It took me longer to get the money than I expected initially."

In July this year, when CNA was already under judicial management, he still wanted to go ahead and buy stock for CNA on a large scale. But his financial directors warned him against this, since it could lead to charges of reckless management. "At that stage I no longer trusted the financial directors since they were like rats leaving the ship," Gordon said in evidence.

Later he obtained a second legal opinion after he had been told CNA could be guilty of violating sec 424 of the Companies Act, which among other things relates to fraud. The second opinion was given later without CNA's factual position being taken into account, he admitted.

Gordon later told Sake he regarded the proceedings as "irrelevant". A new judicial inquiry in terms of sec 417 of the Companies Act starts on Friday in which especially the motives for CTP's present investigation will be questioned, he said.

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