MKM ruling triggers chaos

MKM ruling triggers chaos

MASERU – THE Court of Appeal’s ruling nullifying the sale of MKM properties has left the company’s liquidators in a fix as they ponder on how to comply with the ruling.
The immediate impact of the judgement is to hobble the liquidation process that has been dragging for years.
But its broader consequences are however far-reaching.

By Tuesday this week, the liquidators were scurrying around to convene a meeting to discuss an immediate reaction to the judgement by Court of Appeal president Justice Kananelo Mosito.
Their urgent concern is how to comply with the ruling by reversing the sale of three properties from which they raised M115 million for the MKM estate.
Further complicating matters is the fact that they have no other legal recourse because the Court of Appeal is the final court.
The judgement was emphatic in its conclusion that the sale of the building was illegal.

“I therefore hold that this sale undertaken as a result of an order not sought by a party in circumstances as the present is a nullity,” Justice Mosito said.
He said to avoid further prejudice to the intervening applicants “I would order that the liquidation process be halted pending finalisation of the intervening applicant.”
That was music to some MKM creditors who have vehemently opposed the liquidation from the onset.

Most creditors have long believed that the demise of MKM was hastened by the Central Bank of Lesotho with the aid of other financial companies that viewed that company as a potential threat.
But as some creditors crow and feel somewhat vindicated the liquidators are probably squirming at the sight of the mess they now have to untangle.
For now, it is important to remember that the liquidation has been temporarily halted and not nullified. The judgement says the liquidation should be halted pending finalisation of the intervention application.

It’s possible that what happens in the intervention application might not have a greater impact on the liquidation process already confirmed by the Court of Appeal.
The import of the ruling is to delay the liquidation by, at most, a few months.
But while waiting for that application the liquidators have the inordinate task of reversing the sale.

There are several issues that might be giving the liquidators a pounding headache.
Like a marriage, a sale is much easier to consummate than break up. That is because reversing it involves many more people than those who were part of the initial transaction.
In this case, the proceeds from the sale of the three properties have already been distributed to some of MKM’s creditors that include construction companies owed by MKM for work on some of its buildings.

Those debts have been outstanding since the Central Bank shut down the company in November 2007 on allegations that it was illegally operating insurance and banking businesses.
Nearly M50 million has been paid to an IT company that reconstructed MKM’s record of assets, creditors and debtors. Substantial amounts were paid in fees to liquidators and lawyers.
Another chunk went to the auctioneers and companies that provided security at MKM’s properties.

thepost has been informed that nearly every penny of the M115 million has been spent. There is no way the liquidators can now demand a refund from those creditors.
It will take a monumental court battle or a stunning act of magnanimity for the companies that bought the buildings to return them to the MKM estate.
Sekhametsi Investment Consortium, a venture capital company, paid more than M58 million for the former Agric Bank building, along Kingsway Road opposite Queen Elizabeth II Hospital.

The new building opposite Pioneer garage and next to Sparrows Bar was bought for M43 million by Executive Transport, a haulage company.
Executive Transport also paid M14 million for the dilapidated building opposite Selkol along Moshoeshoe Road.
Sekhametsi and Executive Transport bought the buildings at a private auction.

They are likely to resist any attempt to force them to return the buildings to the estate.
They probably bought the buildings through bank loans which they have been servicing for the past eight months. Undoing the sale means they have to renegotiate with their bankers to allow them to back out of the deal. It is possible to pull out of the transactions midway but it comes with hefty charges.
Even if they cut some deal with their bankers there is a possibility that the companies might be hostile to getting back the exact amounts they paid for the building because a lot has changed since May.

They have paid interest on their loans and the market dynamics have probably pushed up property prices. Their shareholders might also be reluctant to let go of such premium assets. The three buildings are strategically located in the city, making them rich pickings for investors.
Sekhametsi and Executive Transport have made substantial investments in renovating the buildings. Sekhametsi, for instance, has been giving the former Agric Bank building a facelift whose cost runs into millions.

Walls and ceilings have been knocked down. Tiles are being replaced and walls repainted. Executive Transport has been doing the same at the building opposite Pioneer garage.
thepost has been informed that plans are afoot to transform the dilapidated building opposite Selkol along Moshoeshoe Road into a major property.
The investments on the buildings make it harder to undo the sale. The buyers will want to be compensated for their refurbishments and the liquidators are unlikely to have that kind of money in the estate.

There is a possibility that any attempt to reclaim the properties might trigger a strong legal push-back from the buyers. A fresh legal battle might drag on for several years and cost the estate millions in legal fees.

As usually happens in such cases, the liquidators will shop for the best legal minds at eye-watering costs paid from the little kitty creditors were likely to share when the liquidation is finalised.
Justice Mosito’s judgement will also affect the Lesotho Revenue Authority (LRA) and the Land Administration Authority (LAA) which received statutory fees and taxes from the sale of MKM buildings.

From the M115 million received by the MKM estate, the liquidators paid value added tax, stamp duty and transfer costs.
Now that the sale has been nullified, the liquidators have to reclaim those monies from the LRA and the LAA.

Staff Reporter

Previous Majoro talks tough
Next Judge nullifies sale of MKM properties

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