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Mercantile Bank sued for R350m over fraud conspiracy claims
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Cape Town – Mercantile Bank has been taken to court over allegations it conspired with an alleged fraudster in illegal asset stripping worth hundreds of millions of rand.

The bombshell litigation could not have come at a worse time, as the Portuguese-owned and South African-based bank is up for sale.

Alert Steel is seeking damages of R351m caused by alleged "mastermind" Rayhaan Hassim, Mercantile Bank and West Lake Trade and Investments following what it believes was an illegal liquidation process in 2014. ArcelorMittal South Africa has joined Alert Steel as a second plaintiff in the matter.

Alert Steel’s counsel, Wim Trengove SC and Emmanuel Limberis SC, filed papers in the Johannesburg high court on Friday and included the Master of the Court as a defendant, as the court finalised the liquidation.

Portuguese bank Caixa Geral de Depósitos is in the process of selling Mercantile Bank, which has a balance sheet of R12.2bn and R2.2bn in capital.

Mercantile Bank told Fin24 on Monday that it “intends to rigorously defend the matter” as it believes the case is “fraught with factual inaccuracies”.

The alleged conspiracy

Detailing the conspiracy, Trengove and Limberis explain how Hassim, Mercantile Bank and others “conspired to devise and implement a scheme, to transfer the plaintiff's business and all its assets to a new company held by Mr Hassim (West Lake); to pay the plaintiff's loan liability to Mercantile Bank in full; and to put the plaintiff in liquidation”.

“The purpose of the scheme was to appropriate all the plaintiff's assets for the benefit of Mr Hassim and Mercantile Bank at the expense of the plaintiff's other creditors.”

As part of the conspiracy, they accuse Mercantile Bank of sending a letter to the plaintiff dated May 9 2014, “by which it unlawfully purported to cancel their loan agreement and demanded that the plaintiff immediately repay the full outstanding balance of the loan in an amount of R104m”.

The eventual sale of the liquidated assets to West Lake “was in fact only to the benefit of Mercantile Bank and highly prejudicial to all the plaintiff's other creditors”, explain Trengove and Limberis.

After the sale, West Lake “acquired and continued to carry on the plaintiff's erstwhile business. The parties to the conspiracy thus realised its purposes,” the plaintiffs argue.

They argue that the perfection agreement struck was a collusive transaction, transgressing the Insolvency Act. “The plaintiff entered into the perfection agreement in collusion with Mr Hassim and Mercantile Bank, before liquidation”, they argue.

Alert Steel wants the perfection agreement set aside, and wants the court to order Hassim and Mercantile Bank to repay it R251m plus interest.

Furthermore, Alert Steel – which is still alive as a firm – wants Mercantile Bank to forfeit its claim against Alert Steel and wants the bank to repay it R100m plus interest.

Mercantile Bank responds

Mercantile Bank CEO Karl Kumbier told Fin24 that it received the summons on Monday morning.

“Bearing in mind the timing and that this matter is sub judice, we cannot respond in detail to the allegations contained in the summons save to state that the allegations of conspiracy are rejected with contempt and that the other claims have no basis in law.

“We believe the summons is fraught with factual inaccuracies.

“We can confirm that Mercantile lent Alert R104m in the normal course of business. As any prudent lender would have done, the bank was entitled, and within its rights, to call in that loan when Alert breached the terms and conditions attached to it.

“That said, the bank worked with the business rescue practitioner for around two months to find a buyer for the whole or a part of the Alert business and, while a few well-known industry players showed interest, none proceeded with any offers to purchase the business or even part thereof.

“When the bank was advised of Alert’s imminent liquidation, external legal advice was sought and we perfected our general notarial bond. On Alert’s liquidation, six liquidators were appointed.

“The liquidators sourced the buyer after employing a sworn appraiser to value Alert’s assets (which were eventually sold at values in excess of those provided by the appraiser) and, on application by the liquidators, the Master of the High Court approved the sale of the assets.

“The bank did not recover all the money that it was owed by Alert.”
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