... over misappropriated funds

FirstCred Limited survived being placed under liquidation over the disputed funds it allegedly misappropriated thanks to Gaborone High Court Judge, Dr. Zein Kebonang.

The 1st Petitioner (ALCB FUND) and 2nd Petitioners (MINITOS MARKET PLACE) sought the winding up of the 1st Respondent, whilst no relief is sought against the 2nd Respondent, who has been cited in his capacity as Trustee to the Noteholders in terms of the 1st Respondent's P500,000,000 Domestic Medium Note Programme.

Previously known as Getbucks Limited, the 1st Respondent rebranded to FirstCred Limited in 2020 following a takeover by MHMK Group Limited. In his judgement, Justice Dr. Kebonang stated that the categories or headings under which a just and equitable winding up petition might be brought is not to be regarded as limited to the sum of particular instances, such as loss of substratum or a breakdown of trust and confidence, but can also include instances where the company has no hope of paying its debts due to liquidity problems.

The petitioners sought a Court order to place FirstCred under provisional liquidation and for a Rule Nisi that all interested persons show cause why the provisional order should not be made final.

In addition, directing the Master, subject to the provisions of the Companies Act respectively, to appoint Nigel Dixon Warren as Provisional Liquidator of the 1st Respondent, to hold office until the appointment of a liquidator; granting leave to the Provisional Liquidator to carry on or discontinue any part of the business of 1st Respondent, which in his view is necessary for the beneficial winding up of 1st Respondent pending the first meeting of creditors; and to grant him the powers to take decisions to safeguard the business operation and assets of FirstCred for the benefit of all creditors as envisaged by the Act.

According to the judge, FirstCred says in its own financial reports it has liquidity problems and cannot pay creditors unless there is injection of new capital into the business.

It says its shareholders have no desire to inject more equity capital into the company and that its survival is dependent on finding external capital.

“Unless the company finds new capital, it would not be practically possible or possible at all, for it to carry on its lending business. While it has not been shown that a judicial management order would allow FirstCred to meet its obligations, paying its debts in full, it is common cause that FirstCred has a P1 billion Note Programme that has been approved by the Botswana Stock Exchange (BSE).

“The P1 billion Note Programme provides a window and if successfully placed would result in paying the petitioners”.

FirstCred is a micro-lending company operating in Botswana. Sometime in 2016, it approached BSE for authorisation to raise capital in the debt market by floating a Domestic Medium Term Bond Note.

“The request was approved and in early 2017, FirstCred went into the debt market with a P500, 000, 000 Bond Note. On the 24th February 2017, FirstCred issued its first Note of P21 million with a maturity date of the 24th February 2020.

“The note had a fixed interest rate of 15 percent, payable semi-annually. It also had a 3 percent penalty to be paid over the fixed rate of interest in the event of default. On the 10th April 2018, FirstCred issued a second Note of P25 million with a maturity date of the 10th April 2021. As with the 1st Note, it had a fixed interest rate of 15 percent payable semi-annually and a 3 percent penalty to be paid over the fixed rate of interest in the event of default,” Justice Kebonang said in his judgement on Friday last week.

Kebonang said that both Notes were subscribed for and issued to the 1st Petitioner. When the Notes reached their respective maturity or redemption dates however, the 1st Respondent defaulted on payment, leading to the current proceedings.

With respect to the first Note, he said the amount owing on the redemption date was P16 million with an accrued interest of P4,130,136. 99 and accrued default interest of P1,696, 800.82, while that owing with regard to the 2nd Note, was P25 million with an accrued interest of P3, 945, 205, 48 and an accrued default interest of P1,183 597.87.

The judge said the 1st Petitioner contends that the 1st Respondent is insolvent and its failure to pay its debts when due and payable is a sufficient ground for its winding up. Regarding the petition by the 2nd Petitioner, the latter states that on the 10th November 2017, it concluded a Cooperation Agreement with the 1st Respondent in which the 1st Respondent would not only trade its debt through its portal but be obliged to buyback any under-performing debt placed with it, explained Dr. Kebonang, adding that the 2nd Petitioner says they are owed an amount of EUR 3,714,700.46 arising from a breach of the Cooperation Agreement and that the 1st Respondent's failure to pay the amounts owing as and when they fell due and payable, was a sufficient ground for its winding up.

“In response to the petitions, FirstCred admits that it is in breach of payments regarding the two Notes it issued but contends preliminarily as against the 1st Petitioner that it has failed to establish urgency and that it lacks standing to bring the current proceedings.

As against the 2nd Petitioner, the 1st Respondent denies owing the 2nd Petitioner any amounts and contends in the alternative that if there were any amounts due, such would not be claimable as it would be in breach of the terms and conditions of the Note Programme.

“In the event that the Petitioners should somehow succeed, so the 1st Respondent continues, this court must exercise its discretion under section 371 of the Companies Act and refuses to grant a liquidation order but instead issue a judicial management order as it was not in the interest of creditors that the company should be wound up,” the judge concluded.