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SARS and Sharemax

Sharemax made the headlines again last week, after a relatively long lull in media exposure.

It was reported that SARS applied to the North Gauteng High Court to liquidate Sharemax Investments in view of its alleged inability to pay R15.7 million in outstanding taxes.

It also applied for Sharemax’s business rescue proceedings to be set aside and terminated because of non-compliance with the Companies Act. The latter was launched in November 2011, and a business rescue practitioner appointed on December 7, 2011.

According to the reports, the Companies Act requires a business rescue plan to be published by the company within 25 business days of the business rescue practitioner being appointed, or any longer time allowed by the court or the holders of a majority of the creditors’ voting interest.

SARS is reported as saying that Sharemax indicated that it was unable to pay the debt owing to SARS in view of events stemming from the Siegrist determination by the FAIS Ombud.

Please click here to read the Moonstone article written at the time of the determination.

I also came across the latest communication from Nova Property Group Holdings which currently looks after the Sharemax properties. It provides an update on the latest position of the various schemes, including repayments to certain investors. It also reports on its efforts “… aimed at enhancing investment returns, capital growth, and investment repayments when same fall due in terms of the projections contained in the Schemes.”

The information below is an excerpt from the May feedback to investors:

Unfortunately, many of these upgrades and redevelopments have subsequently had to be pended, as it proved extremely difficult, and ultimately impossible, and completely unanticipated, to obtain loan finance from many of the regular Financial Institutions providing such finance, notwithstanding the excellent values of the properties within the Group available for security purposes and notwithstanding excellent serviceability of loans sought.

The reason for such difficulties put forward by Financial Institutions have proved, exclusively, to lie with unwarranted, incorrect, biased, negative and malicious media reporting in the past, and which certain journalists continued to busy themselves with to the extreme detriment of the Group and its stakeholders, including, specifically Debenture Holders.

The stock standard response from Financial Institutions to a negative decision on their part, on a well-founded and well received funding request, has been so-called “reputational risk” to the declining Institution, flowing directly from the destructive media reporting referred to above.

The Group had no choice but to take a view and was unfortunately forced, during last year, to make the decision to rely on internal funding for its upgrading and redevelopment activities, which activities are, as a consequence, smaller than initially planned and approved.

The above ties in directly with the negative impact on monthly investment returns to Debenture Holders, and the current non-payment of investment returns in respect of many of the various classes of Debentures.

As previously reported, this position is expected to stabilise by the middle of 2015 on many of the properties, specifically as the Group is presently focused on smaller refurbishments and upgrades, which is expected to lead to retaining existing tenants, attracting new tenants, minimising vacancies, increasing cash flow and ultimately increasing property capital values for maximum capital payments to Debenture Holders in the long term.

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