Orthotouch, Zephan BRP ‘acting directly against HS investors’ – High Court

The Pretoria High Court has cast serious doubt over the impartiality of Jacques du Toit as the business rescue practitioner (BRP) of two companies from which 18 700 former Highveld Syndication (HS) investors are hoping to recover some of the R5 billion they invested in the failed schemes.

In a scathing judgment handed down on Thursday (8 December), Judge Norman Davis infers that Du Toit was acting in the interest of Georgiou and entities related to him – and “directly against the investors” – in his application. 

Du Toit was seeking a declaratory order regarding the validity of buyback agreements Georgiou signed with HS21 and HS22 investors.

Davis dismissed the application with punitive costs and was highly critical of Du Toit for bringing it in the first place, as at least two previous judgments, one from the Supreme Court of Appeal, found the agreements to be valid.

The application has delayed the business rescue processes of the two Georgiou-linked entities, Orthotouch and Zephan, of which Du Toit is the BRP.

The judgment reaffirms that thousands of former investors in HS21 and H22 may claim repayment in terms of the buyback agreements, resulting in Zephan and the Nic Georgiou Trust potentially facing claims of more than R3 billion.

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Scathing

In the judgment, Davis writes: “It is difficult to understand why the BRP did not follow the existing judgments regarding the specific buyback agreements in the context of the specific facts on this matter …

“The purported neutrality of the BRP is also in question. While he portrays being unconcerned about which way the decision goes, he was very partisan in his founding affidavit … as to why the buyback agreements should not be enforced.

“Even the relief claimed is framed in a one-sided fashion. The explanation for this approach might be the following: should HS investors no longer have buyback claims against Zephan, it would be to the benefit of Zephan.”

Later in the judgment, Davis writes: “Ordinarily, there should be no conflict apparent in respect of a BRP merely claiming declaratory orders to “clarify” a position. A conflict is, however, manifested in the manner in which the BRP in this matter slanted his application directly against the HS investors.”

Du Toit’s response

In response, Du Toit denied being partisan and said he only applied for the declaratory order to limit potential future litigation.

“I had/have no intention to act to the detriment of the creditors/investors, to the contrary, I am trying my best to bring certainty and clarity within the ongoing litigation between various parties.

“Unfortunately, the judge interpreted my intention incorrectly and did not give much clarity on the way forward, except by confirming that the claims were ceded, which gave rise to more legal questions which I will have to engage with my legal team on.

“My application was not to get a judgment against any affected party but purely to seek the court’s advice on which route to follow, my concerns were placed in front of court which posed a difficulty in completing the business rescue process.

“It was clearly stated that I will abide by the court ruling whatever it was but expected more clarity from court.”

Regarding the punitive cost order, Du Toit said he does “not think it was proper under the circumstances” and will seek legal advice as to whether he will appeal it.

He also stated that the legal costs will be funded by money from Orthotouch or Zephan.  

(Read Du Toit’s full response here.)

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Business rescue

The buyback agreements were unique to HS21 and HS22, in which Georgiou undertook to repurchase the investors’ shares after five years.

Du Toit contended that these agreements fell away when the HS companies were placed in business rescue in 2011 and later restructured in 2014 in terms of a Section 155 Scheme of Arrangement. This restructuring tasked Orthotouch with repaying investors. Zephan was the underwriter of the Orthotouch scheme.

However, Georgiou placed both companies into business rescue in 2019. After his appointment as BRP, Du Toit applied for the declaratory order despite several courts, including the Supreme Court of Appeal, ruling that the buyback agreements were valid.

This application has delayed the business rescue process by nearly two years.

Bolt’s response

Advocate Louis Bolt, representing several HS21 and HS22 investors, agreed with the judgment.

“We are however of the opinion that the judge should have ordered that the BRP pay the costs accessioned by the application in his personal capacity as there was no merit in the application and which was brought as a blatant delaying tactic to prevent our clients from enforcing their rights to execute the judgments granted against Zephan, Nic Georgiou and his trust and further to generate fees for himself and his legal advisors.

“We also support the judge’s observations regarding the obvious and blatant bias displayed by the BRP towards the HS investors.

“We intend to now set the other pending applications, including the sequestration application for Mr Georgiou’s estate, down for hearing on dates to be allocated by the Registrar of the Court.”

Highveld Syndication Action Group

Jacques Theron from Theron and Partners, who represents the Highveld Syndication Action Group (HSAG), which has obtained certification for a class action based on the buyback agreements, welcomed the judgment “as it supports the HSAG court cases”.

“Since the outset, the HSAG experienced, what the court here labelled as ‘back door appeals’, by both Hans Klopper [BRP of the HS companies] and Jacques du Toit, as BRPs in their fiduciary positions, whilst spending hundreds of thousands of rands on litigation.

“The court displayed its displeasure at the conduct of Du Toit and sent out a strong message to people in fiduciary positions literally fighting with other people’s money,” Theron said.

Orthotouch and Zephan business rescue process

Du Toit said a digital administrative portal will be launched early next year and that a virtual creditor meeting is scheduled for 10 January.

He also said he would, following the judgment, “reassess and redraft” the published business rescue plans.

“The repayment of creditors vetted claims will, as previously stated, be done through the issuing of Accelerate shares. The agreement with the party who will be making the shares available have been completed but stayed unsigned pending the declaratory judgment.

“The shares will be made available on the Compushare account under my control for issuing when the business rescue plan has been approved and sanctioned by the court.

“Kindly note that creditors will vote in their personal capacities on the IT database which make the identity of the proposer of the shares irrelevant, I frankly do not care who put up the shares as long as we get a return to creditors. The Creditors need to vote in favour of the return offered, or liquidation will be the end result.”