You might wonder what the Guptas are doing with their time these days. That is, after the apparent daily grind of corrupting politicians and capturing state entities came to a sudden end on Valentine’s Day last year, when Jacob Zuma resigned as president and the brothers skipped the country.
But you need look no further than SA’s courts to see that they have, in fact, been hard at work.
In particular, there has been a buzz of legal activity around the eight Gupta-affiliated businesses that were placed into business rescue a year ago. The legal challenges have focused particularly on Optimum Coal, which has not paid wages since October 2018 and ceased operating two months later.
The coal mine was a key asset in the state capture saga. Former public protector Thuli Madonsela’s "State of Capture" report centred on the operation, showing how Eskom forced the then Glencore-owned mine into business rescue before helping (financially and otherwise) the Guptas’ Tegeta Exploration & Resources to buy it. This much was confirmed by Clinton Ephron, former CEO of Glencore Coal SA, when he testified at the Zondo commission of inquiry last week.
In February 2018, the boards of the Gupta businesses elected to place the companies into business rescue, a sort of bankruptcy protection for distressed businesses that is provided for by the Companies Act.
They had no choice. Though the businesses were not financially distressed, they became commercially insolvent when SA banks cut the Guptas off from transactional facilities and India’s Bank of Baroda pulled out of SA, ending a transacting arrangement with the companies.
You need look no further than SA’s courts to see that the Gupta notorious family has been very hard at work
Once in business rescue, the assets became the responsibility of the practitioners — and the legal onslaught began.
In law, the rescue process is designed to take no longer than three months. In the case of Optimum and the other Gupta companies it has dragged on for more than a year. The rescue practitioners have been subjected to 53 legal challenges in the past 12 months. Most have been thwarted, with costs. But a handful of matters continue to hamstring the rescue.
Because the Gupta companies weren’t insolvent, but rather unable to transact, selling the businesses to new owners appears to be the only way to truly rescue them. And because the rescue practitioners expected the mine to quickly run out of money, the assets had to be urgently sold.
As of January, three bidders were in the running for Optimum’s assets: Project Halo; the Phakamisa consortium (of which former Harmony Gold CEO Bernard Swanepoel is part); and a consortium led by the state-owned African Exploration Mining & Finance Corp (AEMFC).
But before a creditors meeting could be called, Eskom, as the largest creditor, wanted to engage the prospective owners to ensure they would be willing and able to supply coal to the Hendrina power station. The station is adjacent to Optimum coal mine, and has received coal from it for about 40 years.
Considering Eskom has the deciding vote, there would be little point in proceeding with a rescue plan — or a bid — that the power utility does not sanction.
But a new set of challenges has rendered Eskom’s dilly-dallying the least of Optimum’s worries.
On February 6, the Guptas’ flagship company, Oakbay Investments, applied to the Pretoria high court to interdict the rescue practitioners from convening any creditors meeting to adopt a rescue plan for Optimum.
In an affidavit, Oakbay CEO Ronica Ragavan says the company has a 29.05% stake in Tegeta and is thus an "affected person".
Ragavan has asked the court to stop a creditors meeting from taking place until another of Oakbay’s legal applications has been settled. The company is looking to remove the two main rescue practitioners, Louis Klopper and Kurt Knoop, because of a "clear and unassailable conflict of interest".
Klopper and Knoop are rescue practitioners for all the Gupta entities, including Tegeta — the 100% shareholder in the Optimum and nearby Koornfontein coal mines, as well as the prized Optimum coal export terminal in Richards Bay.
This, Ragavan says in the affidavit, "has manifested a serious conflict of interest because of the existence of intercompany loans between these entities". In question is a R2bn claim from Tegeta against Optimum coal mine, which Ragavan says has been disregarded to the "extreme prejudice" of Tegeta, its shareholders, and future creditors.
"[Klopper and Knoop] are trying to represent the interests of Optimum coal mine (as a debtor of Tegeta) and those of Tegeta (as a creditor of Optimum coal mine) at the same time," she argues.
In the court papers, Oakbay says Knoop and Klopper are the true cause of the delay in the business rescue because they refuse to remove themselves from the process.
Then came Bermuda-registered Centaur Ventures, which on January 31 also launched an application to interdict the rescue practitioners from convening a creditors meeting and voting on a rescue plan.
In its application, Centaur argues that the business rescue practitioners should not recognise an "excessive" claim from Eskom, which makes the utility Optimum’s largest creditor and gives it the voting rights to control how and if the mine should be rescued.
Centaur is thought to have business ties to the Gupta family, though it has denied this — most recently to City Press.
However, its mining arm, Centaur Mining, cracked a mention in the "State of Capture" report for having contributed R885m to the Guptas’ acquisition of Optimum in 2015. In her report, Madonsela names Aakash Garg Jahajgarhia as a director of Centaur Mining, though it appears is he is no longer registered as such. It was Jahajgarhia who married the Guptas’ niece, Vega Gupta, in the lavish Sun City ceremony that was allegedly partly paid for with funds originating from the Free State government.
Haroon Laher, who is acting for Eskom in the matter, says the utility has notified the court of its intention to oppose the interdict, and has requested that Centaur Ventures provide R500,000 in security for costs.
The legal wrangling could take some time still, and the practitioners have sought an interim financial solution that could allow salaries to be paid out urgently, and operations to resume.
Enter the AEMFC-led consortium. On February 20, it announced a deal to provide Optimum with R1bn in exchange for a management contract. It will also become a creditor and have first right of refusal when the assets finally come up for sale.
While Bouwer van Niekerk, the lawyer for the rescue practitioners, says any rescue plan and sale still has to be voted on by the creditors, he thinks it unlikely that a creditor would vote against a bidder willing to put up R1bn.
Not so fast, says Centaur Ventures, which launched another application last week — this time to interdict the funding deal. In the application, Centaur accuses the rescue practitioners of "opaque dealings" and running the mine in a manner that has failed to seek maximum value for creditors. Centaur says it needs more information on the financing deal to understand its impact on creditors.
Van Niekerk says Centaur’s application is being opposed by the rescue practitioners and Eskom. Because it is just an application at this stage, he says it has in no way stalled progress on the funding deal.
The practitioners have also received a signed proposal for post-commencement financing for Koornfontein from Project Halo.
A tortuous legal process, including 53 challenges in 12 months, has held up the business rescue process at Optimum
— What it means
If the applicants have been using the legal system to frustrate the rescue process, it’s been an expensive exercise.
Van Niekerk estimates that about R20m has been awarded in costs against them.
One can’t help but wonder what the endgame is.
It may be simply to avoid liquidation for as long as possible. The law allows for a liquidator to launch an investigation into the company in question and subpoena anyone with knowledge of the trade dealings, affairs and property of the business; privilege is waived.
Two applications to liquidate the Guptas’ Oakbay Resources have already been launched by Klopper and Knoop.
Under the control of the rescue practitioners, Tegeta applied to wind up Oakbay in September 2018, claiming R2m in fees. Oakbay first opposed the matter, but then settled.
Now, in another liquidation application launched by Tegeta on February 18, the rescue practitioners say Tegeta is owed R3.8m by Oakbay Investments.
The amount relates to a lease service agreement entered into between Tegeta and Oakbay in 2013, under which Oakbay would pay the subsidiary R150,000 a month, excluding VAT, for office space and services. It was agreed the amount would increase by 10% every year. But Oakbay has failed to pay what is due.
The rescue practitioners claim Oakbay is not able to pay its debts and should be wound up. Oakbay meanwhile has made clear its intention to oppose the matter.
What new revelations might flow from a liquidation scenario is anyone’s guess. But if the taxpaying public has learnt anything from the Zondo commission, it’s that the mischief goes deeper than anyone ever imagined.
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