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Tropical Paradise Trading 334 (Pty) Ltd (Under Provisional Judicial Management) Masters Ref: T7655/09 better known as: *Flextronics* Holding Company: Liberty Lane Trading 98 (Pty) Ltd
Documents on File:
1. Notice of Motion 2. Court Order
1. There is amount of R 3 364 436 owed to Bluezone Property Investments (Pty) Ltd (in liquidation) for subsidization of income as reported by the forensic auditors. Please see page 26 of this report. 2. Bluezone Property Investments (Pty) Ltd (in liquidation) has a further claim for Rent Roll and Administration of R 935 035 against the company. This claim has already been proven at the first Creditors’ Meeting. 3. The current account is held with FNB under acc number 62091294315 and is showing a zero balance. The Nedbank account is held under account number 901-591-8420 and has a credit balance of R 593 556.45 as on the 1st of March 2010. 4. The property’s vacancy factor is 0% as on end February 2010. 5. The company’s liability for VAT at 30 November 2009 is estimated at R 286 144. 6. No provisional judicial management fees have been charged or collected from the company, neither has the Master of the High Court granted any fees to be collect by the judicial managers as on date of this report 7. Total Immediate Obligations of the company : R 4 740 893.14 Forensic Auditors’ Report Findings The company was incorporated on 17 May 2005 under reference number 2005/015144/07. The company’s registered office appears to be that of its auditor, Loubser Du Plessis Incorporated, and is given as De Waterkant Building, 10 Helderberg Street, Stellenbosch. Hennie Lamprecht is given as the sole director.
The company’s sole asset of significance is a 2 storey office block situated in Ferndale, Randburg which used to be the Flextronics head office. The company purchased the property from the Sycom Property Fund in June 2006 at a cost of R 66 000 000. The property was valued by J.T. Seyffert in May 2006 for R 81 500 000 and by MP Valuers in October 2006 for R 77 000 000. The property formed the basis of a syndication arrangement by Bluezone at a value of R 87 032 000. Note that the property was purchased by Sycom in 2005 for R 29 900 000. The syndication value represented an increase in the property value of almost 300% in two years.
Broll’s mandate was to find a purchaser for not less than R 40 000 000
Northern Spark Trading, owned by Paul Scheepers (who was employed by Bluezone and prepared the due diligence report on the property) and Hennie Lamprecht received commission of R 1 400 000.
The difference between the syndication value and actual cost, amounting to R 21 032 000 was explained in the Disclosure Document to Investors as follows:
Purchase Price ( incl agent commission transfer costs etc) 69 958 214 Marketing Commissions and other costs 9 573 517 Maintenance Fund 500 000 Vacancy Fund 1 580 000 Bluezone Gross Profit 5 420 269 Total Syndication Amount R 87 032 000
The “maintenance fund” and “vacancy fund” of R 1 580 000 never existed. The forensic auditors are concerned that Honey & Partners charged some R 436 050 for “agreed fee for taking of instructions, consultations, telephone calls made and received, letters written and received, drafting of cession of lease agreement, attendances and administration of funds”. The amount appears excessive.
THE PROPERTY SYNDICATION The Company applied for and was granted a R 40 000 000 bond from Nedbank, to bridge the shortfall until the syndication offer was fully subscribed. The bond was repaid and a credit balance of R 72 598 on the bond transferred by Nedbank to Hennie Lamprecht’s RMB account.
Flextronics did not renew its lease on expiry in 2008. As a result, the company was not able to maintain its level of net rental income.
THE ADMINISTRATION OF THE COMPANY POST SYNDICATION
On syndication, the property was let to Flextronics in terms of a Head Lease. Flextronics did not renew its lease on expiry in October 2008. Rent payable by Flextronics was R 692 792 plus VAT. The current rent roll is R 458 900 plus VAT. This can be attributed to: · 532 sq m. of common area that was included under the Flextronics lease is not generating any rental; and · An additional 779 sq m. is currently unlet.
It appears that Bluezone have given a form of guarantee to the shareholders of Liberty Lane 98 (Pty) Ltd - the holding company. This guarantee “guarantees the interest payments to subscribers in terms of clause 5.3. of the offer to subscribe from date of acceptance till 30 September 2013.” It appears that in lieu of such undertaking, Bluezone made top-up payments to Tropical Paradise Trading 334 (Pty) Ltd and not the holding company, thereby exposing the company to a claim from the liquidators of Bluezone for repayment of these amounts.
The company has rendered an income tax return up to the 2008 tax year, but is in arrear with its VAT payments to an amount of R 286 144.
FINANCIAL POSITION
· The property has been valued by Messrs Valuers & Appraisers at R 40 000 000. We believe the valuation to be too conservative, but would have been satisfied with a valuation of around R 48 000 000;
· Rent collection and management fee are payable to Bluezone on gross rentals, amounting to R 935 035 and
· The “vacancy fund” of R 1 580 000 and the “maintenance fund” of R 500 000 never existed The company’s liabilities exceed its assets by R 49 761 360 (based on Messrs Valuers & Appraisers’ valuation) and is therefore insolvent. The company also faces a claim from the liquidators of Bluezone for repayment of a loan account in the liquidators favour amounting to R 3 364 436.
CONCLUSION
Despite the immediate claims against the company, the property is well situated, and has FNB as a long term tenant. The company should be able to trade out of its difficulties, given time.
However, the forensic auditors believe that the property was significantly over-valued on syndication resulting not only in a loss of interest income to investors but a loss of 40% of their capital.
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