Pickvest investors win R30m case

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Nic Georgiou told to make good on promises.

Hanna Barry | 24 June 2015 00:01

JOHANNESBURG – Property mogul Nic Georgiou has been ordered to honour claims, amounting to nearly R30 million, of 46 investors in his Pickvest-promoted property syndication companies, Highveld Syndications (HS) 21 and 22.

The summary judgement, served in the Pretoria High Court by Acting Judge J Hiemstra, orders Georgiou, the N. Georgiou Trust and his company Zephan to cover the legal costs and pay the claims of the 46 investors with interest at 9% per annum, from December 9 2014 to date of payment.

The application brought by the investors pertains to buy-back agreements that HS 21 and 22 entered into with Zelpy, now Zephan (Pty) Ltd, whereby investors’ capital was secured.

According to the prospectus of HS Company 21, also known as Tyger Manor Syndication and worth R1.3 billion, a head lease agreement and buy-back agreement provided investors “with peace of mind in the knowledge that their money is safe and assured of guaranteed yields”.

The head lease agreement secured the investors’ income, at a yield of 12.5% a year, from the date of investment until the “guaranteed buy-back” of the investors’ shares five years from the investment date.

The HS 22 prospectus also contained a buy-back agreement with Zelpy.

Judge dismisses defendant’s arguments

Acting Judge Hiemstra described as “opportunistic” the defendants’ argument that the buy-back agreements were of no force or effect since they had in fact not been signed when investors purchased their shares.

“The plaintiffs [investors] purchased the shares because of the security of the buy-back agreements. That made the investment ostensibly risk-free. The investors were made to believe that contracts in that form had in fact been signed. It is highly probable that such contracts had in fact been entered into, at least orally,” Judge Hiemstra writes in his judgement.

“If that was not the case, the HS Companies had attempted to commit fraud involving millions of rands. In the event, the buy-back agreements were ultimately signed and the undertakings contained therein stand. It matters not that the buy-back agreements had been signed after the plaintiffs had accepted the benefit,” he said.

Judge Hiemstra also dismissed the argument – put forward by Advocate Pierre Rossouw Senior Counsel (SC) on behalf of the defendants – that the business rescue plan, adopted in December 2011 by HS 15 to 22, restructured the rights of the investors and they therefore could not rely on the buy-back agreement.

In terms of the business rescue plan, a shell company acquired by Georgiou through the NAG Trust, known as Orthotouch Limited, was to take over the obligations to repurchase the shares of the investors in the HS Companies five years from the date of the adoption of the business rescue plan.

This was known as the Orthotouch Agreement. It also served to reduce the monthly interest payments to investors.

In dismissing this argument, Judge Hiemstra relied on clause 6 of the buy-back agreement, which requires the signatures of at least 75% of the shareholders in each of HS 21 and 22, as well as a special resolution, in order to change the terms of said buy-back agreement.

“It cannot be inferred from its [the business rescue plan] adoption that 75% of the shareholders had agreed to the variation [in their rights]. Clearly no special resolution has been passed and the variation has not been signed by the parties,” Hiemstra said.

He further argued that the meeting of investors to vote on the business rescue plan was in respect of HS 15 to 22 and that there is “no allegation regarding the outcome of the voting in respect of HSC 21 and HSC 22”.

Georgiou will appeal

It is not yet clear how this will impact the claims of investors in the other HS Companies. Moneyweb has evidence that the prospectus of HS 20 contains a buy-back agreement and is reliably informed that HS 19 does too.

Georgiou’s attorney in the matter, Mario Kyriacou, a director of Kyriacou Incorporated, confirmed that the matter is being appealed and could not make any further comment “as same is sub judice”.

If the appeal is successful, payment to investors in HS 21 and 22 could be delayed.

Business rescue practitioner for HS 15 to 22, Hans Klopper said the case had nothing to do with the business rescue process.

Attorneys hoping to bring a class action, meanwhile, are pleased with the verdict, which they say supports their case. Stellenbosch-based, Theron & Partners issued a class action application for HS 19 to 22 in October 2014. The Highveld Syndication Action Group (HSAG) has now garnered the support of 10 000 investors, according to the firm.

The class action seeks relief for a much larger group of investors from a wider group of defendants – 22 respondents in total, including Georgiou, members of his family, former directors of the Highveld Companies, Orthotouch and others.

Their demands are based on what they claim to be the fraudulent and reckless manner in which a collective R4.6 billion, belonging to the 18 000 mostly elderly investors who invested in HS 15 to 22, was dealt with.

Publisher: Moneyweb | Hanna Barry | 24 June 2015