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South Africa to acquire Jaggers Wholesalers last year – apparently without ever owning the business after Metcash failed to meet all the conditions stipulated.
Jaggers, now in liquidation, is still and has always been owned 100 percent by Metcash.
Efforts to get comment from Metcash and Mr Muderede to ascertain the current position were fruitless at the time of going to press.
But investigations by Herald Business have established that the Reserve Bank of Zimbabwe Exchange Control did not approve of the acquisition as required by law. Metcash had not provided all the relevant information for the application to be considered.
Under Zimbabwean law, when a foreign investor sells a local business and before the repatriation of the funds, exchange control authority must be sought so that the amount being expatriated is fair in relation to the valuation of the business sold.
This prevents the externalisation of foreign currency from the country on the pretext of disposal of a business at an inflated price.
Investigations by Herald Business also revealed that when Metcash entered into an agreement with Mr Muderede, significant amounts of Jaggers’ liabilities estimated to be US$10 million, were not disclosed to Mr Muderede and only surfaced when he had signed the agreement.
The purchase price was agreed at US$7,5 million for 100 percent of the business but due to the undeclared liabilities Muderede would end up paying much more. In fact, at that point, Jaggers was technically insolvent.
Sources close to the deal, said Metcash, who are set to close down 51 shops in South Africa within the next few months, was supposed to free their equity in the wholesaler which equity was encumbered.
The agreement between Metcash and Mr Muderede noted that if the conditions precedent to the transaction were not fulfilled by May 17 last year the provisions of the agreement would not become effective – this condition was never met.
The full purchase price of US$7,5 million was to be paid in tranches of US$2,5 million.
The first tranche was scheduled to have been paid by May 15 last year to an account of Metcash’s choice. The second installment fell due on December 31 last year.
The last tranche was to be paid by December 31 this year. For the first two installments, Borlscade, an investment vehicle owned by Mr Muderede, was expected to furnish Metcash with the first demand bank guarantee by not later than May 15, 2010 – this guarantee was never met.
Sources say Metcash was to remain a technical partner but this condition was also not met.
Having met all conditions precedent, Metcash and Borlscade were supposed to meet at Jaggers offices for the seller to deliver the share certificates at which time the risk then passed on to the buyer.
The share certificates were never delivered, but Mr Muderede was given management control of JW Jaggers. This condition forced him to enter into separate agreements with the creditors of JW Jaggers to continue stocking the business.
This effectively meant that the payment risk on liabilities incurred by Metcash were passed over to Mr Muderede while Metcash still owned the business 100 percent, which is still the case to this day.
In that regard, creditors started suing Mr Muderede when he did not own the business.
It is alleged the agreement prepared by Metcash’s South African attorney excluded critical pre-conditions, such as the Zimbabwean Exchange Control approvals on disinvestments.
But Borlscade was then instructed by Metcash to transfer the first US$2,5 million to South Africa, at which time Premier Bank Corporation which was supposed to finance Borlscade, advised that the agreement required exchange control approval.
Premier Bank Corporation was subsequently requested to handle the Exchange Control application. The bank then requested Borlscade to submit the required documentation to facilitate Exchange Control approval.
These documents were supposed to come from Metcash which wanted proof of capacity to pay from Borlscade in the form of funds being deposited into a trust account.
The trust account was for the benefit of Borlscade, until all conditions were met. The US$2,5 million was duly deposited in a trust account with Stanbic.
Metcash, on the other hand, did not provide the information required to obtain Exchange Control approval and subsequently the application was not successful. The little information available had become stale considering that this was almost a year ago.
Sources said the central bank had instructed the closure of the trust account until a fresh application with full documentation could be lodged.
Late last year, several litigation matters were instituted against JW Jaggers by creditors and institutions, forcing Mr Muderede to use his own resources to contain creditors left by Metcash, although he did not own the business, nor did he hold any share in the business.
Assets and stock were attached and disposed of, including shop fixtures and fittings.
There was labour unrests as workers demonstrated against the acquisition.
In the interim, Premier has withdrawn funds deposited into the trust account until Metcash submits the required documentation.