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“The Reserve Bank directive that investors’ capital must be protected certainly doesn’t mean the statutory managers may not sell assets at less than cost price or syndication value.” – Advocate Michael Blackbeard, for the Bank
A MARVELLOUS EXCHANGE of words (or is it a civil war?) is taking place among the financial advisers previously so keen to place our senior citizens’ money with the Sharemax property syndications. On the one hand, there’s the group giving unqualified support to the SA Reserve Bank and the new independent board in a Section 311 scheme of arrangement. On the other, there’s Herman Waschefort, who has solutions – or dreams – that could result in capital losses and possible liabilities for the advisers. Waschefort is now being branded a heretic in Sharemax circles.
Sharemax founder Willie Botha has also reappeared. In a letter to his former colleagues he’s now singing the praises of the Reserve Bank as their saviour. That’s the same Bank – and especially Deputy Registrar of Banks, Michael Blackbeard – whose status has quickly changed over the past two weeks from skunk to champion.
The reason is the so-called directive given by Blackbeard himself to the two statutory managers – Neels Alant and Jaco Spies – he appointed for Sharemax and its syndications. The directive states: Investors’ capital must be protected, no liquidations may be granted and investors’ deposits must be refunded.
The advisers, with the assistance of new chairman and former Judge Willie Hartzenberg and spokesman Dawie Roodt, interpret that directive very conveniently as meaning – under the proposed 311 scheme of arrangement – no action may be taken by the manager that may cause capital losses. In brief, no building may be disposed of at less than the syndication value.
The gist of the 311 scheme of arrangement seems to be that no capital losses may be suffered and that the advisers will therefore escape any claims by investors. That’s the advisers’ interpretation. In his letter to them, Theo van Grijp, one of a trio in control of DA-Assist, an organisation formed to protect the interests of brokers, shares the following good news with his fellow advisers.
At a meeting with Frontier, which now manages Sharemax’s day-to-day activities, it was said “the advisers are very serious about the fact that they will not be able to support any solution that will result in capital losses for the investors. If the Section 311 scheme excludes capital losses for the investor it automatically means no liability for the capital losses for the advisers. This is a very important point”.
That’s a unique way of interpreting the Reserve Bank’s directive. Blackbeard was very quick to confirm to Finweek last week that directive No 1 – which reads: “The investors’ capital must be protected” – is indeed an instruction to the statutory managers to proceed as effectively as possible with investors’ assets. “Keep the losses and costs as low as possible; the instruction is not a fire sale,” Blackbeard said.
The interpretation by the old Sharemax advisers, perhaps with some help from the new board of the syndications and the new management company, Frontier, that it means there may not be any capital losses is simply wrong.
The net rental income (see table), with the possible exception of Leeupoort, is simply far too low to justify the so-called syndication value of the buildings. Even in the case of an orderly sale of the buildings, the prices that could be realised would in most cases be far short of 50c in the rand.
Of course, it suits the board of the syndications perfectly to have the advisers suddenly now supporting their 311 scheme of arrangement so eagerly. Spies says there are currently more than 27 000 individual investments in the syndications. The number of people could be fewer, perhaps around 25 000, as some invested in more than one syndication. To get the scheme of arrangement to work, the directors need the support of 75% of those 25 000 investors. Not only 75% of those who turn up at the meeting but 75% of both the number and extent of the investors.
In a special letter to financial advisers who marketed Sharemax Investments’ property products, signed by Judge Hartzenberg, the board confirms that on 1 March this year it held a kind of information session with a group of advisers involved with Sharemax products. Hartzenberg again pointed out how important it was for the advisers to keep up to date with developments and especially to make sure their clients (investors) got to see the original media and other releases. The reason for that, Hartzenberg said, “was that the investors should not depend on newspapers and the radio, or on journalists’ interpretations”.
Hartzenberg is quite right, but then the releases and communication with advisers and the investors should preferably be fully complete from the beginning.
To the advisers, this isn’t a journalist’s interpretation. The first point of the Reserve Bank’s directive – “investors’ capital must be protected” – certainly doesn’t mean the statutory managers may not dispose of an asset at less than the syndication value. Investors will still suffer losses, even if the 311 scheme works perfectly.
section 311 scheme of arrangement
Investors already paying
A SECTION 311 scheme of arrangement to settle the affairs of a company that’s got into trouble costs money, just like a liquidation. A lot of money. Investors in the different syndications, probably without realising it, already contributed R640 000 to the cost of the planned Section 311 scheme of arrangement last month.
The major difference is that with a 311 scheme the owners – in this case, the investors – pay the costs. In the case of a liquidation the costs are for the account of the creditors who apply for the liquidation. Once everything has been finalised the costs of course come off the value of the estate. Nobody involved in the Section 311 expects 100c in the rand; then a Section 311 scheme would of course not be necessary.
The fact that an application is being made to the High Court for a business or a group of businesses, as with the Sharemax syndication, underlines the financial problems of the businesses.
In their motivation to the Reserve Bank as to why the board of the syndications wants to apply for a Section 311 scheme of arrangement, chairman Judge Hartzenberg says, among other things, in paragraph 3,7: “Some of the companies in the group appear to be commercially insolvent, certainly to the extent they cannot pay their debts as they fall due, and some may be factually insolvent.”
The table shows in February different amounts, but mostly R44 776, were collected from each of the syndications that could afford it. That’s a significant share of the net monthly income earned by some of the syndications.
Finweek will study the March 2011 release on the latest status of the different syndications as usual and undertake the necessary interpretation for our readers.
New development
LATE ON Tuesday afternoon (15 March) the recently appointed “independent” directors of Sharemax joined full force in the slanging match with an eight-page statement. Go to www.frontieram.co.za, click on clients, then Sharemax, followed by press release.
A MARVELLOUS EXCHANGE of words (or is it a civil war?) is taking place among the financial advisers previously so keen to place our senior citizens’ money with the Sharemax property syndications. On the one hand, there’s the group giving unqualified support to the SA Reserve Bank and the new independent board in a Section 311 scheme of arrangement. On the other, there’s Herman Waschefort, who has solutions – or dreams – that could result in capital losses and possible liabilities for the advisers. Waschefort is now being branded a heretic in Sharemax circles.
Sharemax founder Willie Botha has also reappeared. In a letter to his former colleagues he’s now singing the praises of the Reserve Bank as their saviour. That’s the same Bank – and especially Deputy Registrar of Banks, Michael Blackbeard – whose status has quickly changed over the past two weeks from skunk to champion.
The reason is the so-called directive given by Blackbeard himself to the two statutory managers – Neels Alant and Jaco Spies – he appointed for Sharemax and its syndications. The directive states: Investors’ capital must be protected, no liquidations may be granted and investors’ deposits must be refunded.
The advisers, with the assistance of new chairman and former Judge Willie Hartzenberg and spokesman Dawie Roodt, interpret that directive very conveniently as meaning – under the proposed 311 scheme of arrangement – no action may be taken by the manager that may cause capital losses. In brief, no building may be disposed of at less than the syndication value.
The gist of the 311 scheme of arrangement seems to be that no capital losses may be suffered and that the advisers will therefore escape any claims by investors. That’s the advisers’ interpretation. In his letter to them, Theo van Grijp, one of a trio in control of DA-Assist, an organisation formed to protect the interests of brokers, shares the following good news with his fellow advisers.
At a meeting with Frontier, which now manages Sharemax’s day-to-day activities, it was said “the advisers are very serious about the fact that they will not be able to support any solution that will result in capital losses for the investors. If the Section 311 scheme excludes capital losses for the investor it automatically means no liability for the capital losses for the advisers. This is a very important point”.
That’s a unique way of interpreting the Reserve Bank’s directive. Blackbeard was very quick to confirm to Finweek last week that directive No 1 – which reads: “The investors’ capital must be protected” – is indeed an instruction to the statutory managers to proceed as effectively as possible with investors’ assets. “Keep the losses and costs as low as possible; the instruction is not a fire sale,” Blackbeard said.
The interpretation by the old Sharemax advisers, perhaps with some help from the new board of the syndications and the new management company, Frontier, that it means there may not be any capital losses is simply wrong.
The net rental income (see table), with the possible exception of Leeupoort, is simply far too low to justify the so-called syndication value of the buildings. Even in the case of an orderly sale of the buildings, the prices that could be realised would in most cases be far short of 50c in the rand.
Of course, it suits the board of the syndications perfectly to have the advisers suddenly now supporting their 311 scheme of arrangement so eagerly. Spies says there are currently more than 27 000 individual investments in the syndications. The number of people could be fewer, perhaps around 25 000, as some invested in more than one syndication. To get the scheme of arrangement to work, the directors need the support of 75% of those 25 000 investors. Not only 75% of those who turn up at the meeting but 75% of both the number and extent of the investors.
In a special letter to financial advisers who marketed Sharemax Investments’ property products, signed by Judge Hartzenberg, the board confirms that on 1 March this year it held a kind of information session with a group of advisers involved with Sharemax products. Hartzenberg again pointed out how important it was for the advisers to keep up to date with developments and especially to make sure their clients (investors) got to see the original media and other releases. The reason for that, Hartzenberg said, “was that the investors should not depend on newspapers and the radio, or on journalists’ interpretations”.
Hartzenberg is quite right, but then the releases and communication with advisers and the investors should preferably be fully complete from the beginning.
To the advisers, this isn’t a journalist’s interpretation. The first point of the Reserve Bank’s directive – “investors’ capital must be protected” – certainly doesn’t mean the statutory managers may not dispose of an asset at less than the syndication value. Investors will still suffer losses, even if the 311 scheme works perfectly.
section 311 scheme of arrangement
Investors already paying
A SECTION 311 scheme of arrangement to settle the affairs of a company that’s got into trouble costs money, just like a liquidation. A lot of money. Investors in the different syndications, probably without realising it, already contributed R640 000 to the cost of the planned Section 311 scheme of arrangement last month.
The major difference is that with a 311 scheme the owners – in this case, the investors – pay the costs. In the case of a liquidation the costs are for the account of the creditors who apply for the liquidation. Once everything has been finalised the costs of course come off the value of the estate. Nobody involved in the Section 311 expects 100c in the rand; then a Section 311 scheme would of course not be necessary.
The fact that an application is being made to the High Court for a business or a group of businesses, as with the Sharemax syndication, underlines the financial problems of the businesses.
In their motivation to the Reserve Bank as to why the board of the syndications wants to apply for a Section 311 scheme of arrangement, chairman Judge Hartzenberg says, among other things, in paragraph 3,7: “Some of the companies in the group appear to be commercially insolvent, certainly to the extent they cannot pay their debts as they fall due, and some may be factually insolvent.”
The table shows in February different amounts, but mostly R44 776, were collected from each of the syndications that could afford it. That’s a significant share of the net monthly income earned by some of the syndications.
Finweek will study the March 2011 release on the latest status of the different syndications as usual and undertake the necessary interpretation for our readers.
New development
LATE ON Tuesday afternoon (15 March) the recently appointed “independent” directors of Sharemax joined full force in the slanging match with an eight-page statement. Go to www.frontieram.co.za, click on clients, then Sharemax, followed by press release.
