Illovo in court over finances

Malawi Stock Exchange (MSE)-listed Illovo Sugar (Malawi) Limited and its 11 directors have been taken to court over claims of falsifying the company’s financial statements and holding information from its minority shareholders.

Prudential Holdings Limited, a holding company representing some minority shareholders, also claims that Illovo Sugar was making payments to “undisclosed related payments to Illovo Sugar in South Africa and its parent company, Associated British Foods, in the United Kingdom.

Through Civil Case Number 33 of 2016 filed on February 9 2016, the court has summoned defendants R.J. Allende, S.L. Robert, K.M.J. Tembo, G.B Dalgleish, H. Abdool-Samas, J.P Hulley, G.H. Williams, A. R. Mpungwe, Dr M.A.P Chikaonda, D.B. Mawindo, S.L.G. Malata, Illovo Sugar (Malawi) Limited and Illovo Sugar Limited to appear before a commercial court judge on April 12 2016.

The declarations in the summon were based on affidavits sworn by messrs R.H. Savjani, G. Tembo and A.A. Kalanda who demanded that Illovo Malawi and/or its directors should disclose commission payments of K335 million ($500 000) and K603 million ($900 000), the details of the transactions and procurement that attracted a K300 million interest with Illovo South Africa.

The minority shareholders also accuse Illovo Sugar (Malawi) Limited, which listed on MSE in 1997, of failure to disclose excessive borrowing which increased by 40 percent, the financial costs increased by 135 percent and a bank overdraft which increased by K1.2 billion, saying the borrowings have had no commercial rationale and were without any adequate or proper consideration by the board. They also accuse Illovo Malawi of diverting distributable profits from the minority shareholders.

Savjani & Company, lawyers representing Prudential Holdings Limited, indicated that they do not comment on ongoing court cases.

However, Illovo Sugar Group confirmed the summon and denied the allegations brought by the minority shareholders.

In an e-mailed response on Tuesday, Illovo Sugar Limited group communications manager Chris Fitz-Gerald said it was correct that Prudential Holdings Limited has instituted proceedings against Illovo Sugar (Malawi) Limited, Illovo Sugar Limited and 10 other defendants in the High Court of Malawi and that the first hearing was set for April 12 2016.

He said: “The action is being vigorously opposed by the defendants, who strongly deny all allegations of any wrongful or improper conduct, and comprehensive responses have been filed with the court.

“The defendants are also launching the appropriate applications to protect their rights and are confident of vindication before the High Court, for the benefit of all shareholders.

“As the matter is currently subjudice, we do not believe it would be appropriate to debate the matter in the public domain at this stage, before the court has had the opportunity to deliberate on the matter.”

Illovo Malawi has cautioned that results for the 2015/16 financial year ending March 31 2016 will be lower.

“…Illovo Sugar [Malawi] Limited, accordingly, advises that its forecast profit after tax for the year ending 31 March 2016 is expected to be at least 40 percent below that achieved for the year ended 31 March 2015 largely due to the ongoing adverse trading conditions,” reads the statement signed by Illovo Malawi company secretary posted on February 9 2016.

Information sourced at MSE and Wall Street website market capitalisation of K142.6 billion. With 713 444 391 shares in issue, the company’s latest dividend paid was K7.50 per share and its earnings per share (EPS) stand at K11.46.indicates that Illovo Malawi has

Details of the summon show that Prudential Holdings Limited accuse Illovo Malawi of falsifying financial statements regarding management and procurement costs payment and liabilities to Illovo South Africa.

The summon further claimed that Illovo Malawi breached Section 182 of the Companies Act, as the sugar company’s directors failed to have prepared annual accounts which give a true and fair view of the state of affairs and profit or loss of the company as they omitted transactions/details from the financial statements.

The court documents also show that Prudential Holdings Limited stated that the company breached Section 180(2) of the Companies Act challenging conditions of a transactions and failure to explain or disclose transactions that resulted in Illovo Malawi paying:

•K121 million interest being payable to Illovo South Africa

•Selling of sugar worth K10.878 billion and K10.846 billion to Illovo England

•Management fees of K2.063 billion and K1.306 billion payable to Illovo South Africa.

•Procurement charges of K9.854 billion and K9.854 billion payable to Illovo South Africa.

The minority shareholders also asserted that Illovo Malawi failed to disclose, in accordance with International Accounting Standard (lAS), details of the related party transactions with companies, including East African Supply (Pty) Limited, Illovo Mauritius 2, Illovo Group Marketing Services Limited, Illovo South Africa, Illovo South Africa – Procurement, Illovo South Africa-Share-based payments, Illovo Sugar South Africa, Illovo England, Illovo Mauritius 1, Ubombo Sugar Limited and Zambia Sugar Plc.

“Illovo Malawi and its directors breached Malawi Stock Exchange [MSE] listing Requirements section 7.3(c) that highlight about failure to publish Trading Statements, Section 8.27 on increased borrowing which increased by 135 percent with the bank overdraft increased by MK1.2 billion.

“Additionally, there are no disclosures of the effects of the borrowings on the earnings per share nor any reason for the non-disclosure has been given. In breach of Section 7.3(c) of the listing requirements, IIlovo Malawi and or its directors have failed to publish a Trading Statement 30 days before the reporting date of 31st March 2015 regarding the significant decrease in net profit,” reads in part the court documents.

The summon also wanted an explanation on the non-disclosure of beneficial interests of managing director (MD) and group finance director (GFC) of Illovo South Africa who have indirect interest in Illovo Malawi as shareholders of Illovo South Africa.

Prudential Holdings Limited also questioned managerial roles of majority of the directors which, the minority shareholders observed, was a breach of Section 7.66 of the listing requirements saying the seven out of 11 Illovo Malawi directors have managerial roles in Illovo Malawi or Illovo South Africa.

Prudential Holdings limited, in the summon, also raised the violation of Section 10.2 of the listing requirements that amounts to an avoidance of the checks put in place by MSE to protect the interests of minority shareholders.

The minority shareholders also want the court to order that Board of Directors of Illovo Malawi and Illovo South Africa—the effective majority owner of Illovo Malawi—were in breach of paragraph 2.11 of the Malawi Code II which requires the majority of owners and the members of the board to appropriately respect the rights of minority owners and to not conduct the company affairs in a manner which is unfairly prejudicial to the interests of minority owners and or the purpose of the company.

Prudential Holdings Limited also want the court to order financial statements be revised in order to reflect the true financial position of Illovo Malawi and that any reasonable expenses included by Illovo Malawi revising the accounts are to be paid by the directors who were party to the approval of the misleading accounts.

Prudential also want to order rescission or repayment void on:

•All transaction entered by Illovo Malawi between April 1, 2013 and March 31, 2014 in breach of sections 8.27 and 10.2 of the listing requirements

•All transaction entered into by Illovo Malawi between April 1, 2014 and today’s date, in breach of sections 8.27 and 10.2 the listing requirements

•That the transactions with Illovo England amounting to K10.578 billion and K10.846 billion be set aside as void.

•That Illovo South Africa 2016

should repay the said sum of money of K11.917 billion and K11.160 billion to Illovo Malawi at the exchange rate on the ruling dates of transaction

•That Illovo Malawi must fully disclose all documentary evidence of the transaction(s) purporting to be the sale of sugar worth K10.578 billion and K10.846 billion to Illovo England including the terms of such sales .

Prudential is also asking the court to issue a restraining order on Illovo Malawi and its board of directors from further transacting with related parties on undisclosed terms.

The company also want the court to order that Illovo Malawi to appoint new directors and that the composition of the board of directors must comply with the Malawi Code II.