Tussle over P100m

In a petition before court, Norsad says it is owed USD10,000,000 (nearly P129 million) and it seeks the winding up of ABCH to recover the funds it loaned to it. However, ABCH says it is undergoing debt restructuring in which certain signed agreements may result in Norsad being unable to recover its P100 million and that the financier is an unsecured creditor. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,3,4" ihc_mb_template="1" ] Court documents show that the credit facility was granted to ABCH for the specific purpose of “Tier II Capital and Liquidity management within the borrower’s banking subsidiaries…”. Court heard that ABCH drew down the full amount on 7 October 2013 and was required to repay the full amount on or about 7 October 2020. According to available evidence, ABCH has not repaid the USD 10 million, and Norsad says this constitutes an event of default in terms of the credit facility. ABCH does not deny the facility and testifies that it has paid approximately USD6.1 million in the form of interest. The amounts outstanding (USD10 million) were due to be repaid on 7 October 2020. However, ABCH reasoned that as a result of Norsad’s practice of submitting its invoice on a quarterly basis, it was understood by both Norsad and ABCH that the amounts outstanding would become payable by the end of the relevant quarter, which was on or before 31 December 2020. Well in advance of the due date, in June 2020, ABCH said it had approached Norsad with a view of negotiating a possible refinancing of the facility agreement. Atlas Mara and ABCH undertook a review of strategic options to streamlining the business of the group and raise capital in 2019 which included improving operational efficiencies and divestments of certain assets. However, its strategic fundraising transaction did not complete due to the COVID-19 pandemic, whereupon ABCH says it commenced engagements with the principal holders of the debt due to mature in 2020, including Norsad. It is against this background that ABCH says it engaged with Norsad in order to try and reach new terms for profiling the facility agreement prior to the maturity date. ABCH also declares that it invited Norsad to enter into a debt standstill agreement and similar bilateral agreements as part of its broader debt restructuring arrangement with ABCH’s creditors. On the other hand, Norsad is said to have refused this invitation, saying that it would not participate in such agreements even as the borrower had warned that it would not recover the debt if did it not participate. Court documents show that Norsad made several demand attempts in the absence of a standstill agreement, reminding the borrower that its deadline for full repayment was 31 December 2020. Meanwhile, ABCH says it had entered into this standstill agreement with certain other creditors on 28 December 2020. Its position was that Norsad would be best served by becoming a party to the agreement to maximise value for its creditors. ABCH says Norsard holds 7.1 percent of the ABCH total debt and believes it has filed the petition in order to exert pressure on them to extract payments ahead of ABCH’s other creditors who together hold 92.9 percent of the ABCH debt. According to ABCH, it has four creditors, three of which agreed to enter into a standstill agreement. ABCH submits that two of the creditors accounting for 80 percent of ABCH’s creditors have signed Creditor Support Letters opposing Norsad’s petition. However, Norsad believes that it is clear that the wider debt restructuring exercise is an attempt by ABCH to reach a compromise with its creditors and that reaching a compromise simply proves that ABCH is unable to pay not only Norsad but all its creditors. In its court papers, Norsad says ABCH is unable to pay its debts and that any commercial agreement, such as the debt restructuring exercise, is simply delaying the inevitable winding up of ABCH. Norsad has also expressed concern that ABCH is disposing of assets in order to pay its debts and is in the process preferring certain creditors, namely those that have agreed to the standstill agreement, over Norsad. The financier states that ABCH’s attempt to reach a compromise with its creditors, the disposal of its assets, and its preference for certain creditors justify ABCH to be wound up to the prejudice of general creditors. As such, Norsad believes that if a liquidation order is granted by the court, the interests of all of ABCH creditors would be preserved. On the other hand, if a winding-up order is not granted, ABCH will continue to persuade its creditors to either join the standstill agreement or enter into ad hoc agreements. The position of Norsad is that if the court places its hand on ABCH by granting a winding up order, a concursus creditorum will be established and the creditors will receive equal treatment, unlike the standstill agreement that Norsad is against. According to court documents, the agreement prohibits ABCH from making any payments of interest or principal debts under its financing arrangement so that the consenting creditors would not be placed at a disadvantage as a result of the forbearance (and therefore preserving the pari passu treatment of the consenting creditors with other creditors). ABCH says it agreed with all the consenting creditors on 31 March 2021 to extend the agreement to 30 April 2021 and that this was further extended to 17 May 2021. As a result of the standstill agreement and bilateral agreement, ABCH says it has elected not to make payments of the amount claimed by Norsad. “The fact of nonpayment does not in and of itself, justify the conclusion that ABCH is unable to pay its debts,” it says. In addition to its engagements with creditors, ABCH says it accelerated asset divestments in 2020. Against this background, it found other acquirers and executed agreements for the sale of its banking assets in Mozambique and Tanzania to replace the Equity Group Holdings (EGH had entered into an agreement to exchange certain banking assets of ABCH in four countries but the transaction was halted by the outbreak of COVID-19). The Mozambique transaction was approved by the central Bank of Mozambique in February 2021 while the Tanzania transaction was awaiting approval at the time. Norsad questioned the Mozambique transaction, saying that the sale was not disclosed to them and that it needs to be investigated by a liquidator as it occurred within six months of its petition being issued and may constitute an impeachable transaction. “ABCH further intends to sell its subsidiaries in Tanzania and Zambia,” Norsad notes and argues that the sale of ABCH subsidiaries is in breach of the express purpose of the credit facility, which was to use the amount loaned to provide Tier II capital and liquidity management to ABCH’s banking subsidiaries in Mozambique, Tanzania and Zambia, among others. But ABCH says at the time that the loan was utilised, it was not part of the Atlas Mara Group. ABCH says the erstwhile owners used the funds that were advanced and the current owners inherited the debt. “The insinuation that funds were not used for the intended purpose is unfounded as no evidence is attached in this regard,” says ABCH. Norsad explicitly states that its right as a creditor to have ABCH placed into liquidation cannot be trumped by a perceived global trend towards rescuing companies in distress. Norsad says it is only the legislature, not the courts, that can change the Companies Act. “The legislature has provided that where a respondent company is unable to pay its debts, the courts may place it in winding up. While ABCH insists that Norsad will only be paid if it becomes party to the compromise agreement, Norsad argues that it cannot be forced to enter into such an agreement, even more so when that agreement would result in Norsad losing its rights in Botswana and having to enforce its right in the United Kingdom. Says Norsad: ‘the court will not give ABCH special treatment just because it is part of a global group of companies. ABCH is a company that is unable to pay its debts, it should be placed under liquidation.” [/ihc-hide-content]

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