Dispute erupts over CFI deal

By Shame Makoshori

A dispute had erupted between Zimbabwe Stock Exchange-listed CFI Holdings Limited shareholders over Longford Estates, only a year after they overwhelmingly voted to dispose of the 834 hectare estate to unlock long term capital, the Financial Gazette’s Companies & Markets (C&M) can exclusively reveal.

The deal, which was worth almost US$20 million, involved the sale of Longford Estates to Fidelity Holdings limited, which was seeking to expand its land bank in Harare, where it has been undertaking substantial housing developments.

Since 2009, CFI has failed to access appropriately priced and structured capital, which is vital to repair a serious damage on the business, which has been teetering on the verge of insolvency.

CFI held 81 percent shareholding in the vast Longford Estates, which is located about 15 kilometres south west of central Harare and was sold for US$18 million.

C&M can reveal that British tycoon, Nicholas van Hoogstraten, who controls over 35 percent shareholding in CFI through various vehicles, has initiated moves to force a reversal of the transaction after uncovering what he claims to be “illegal” issues related to the deal.

Messina Investments, one of van Hoogstraten’s investment vehicles, is pushing for the reversal, according to documents seen by C&M this week.

But if the transaction is reversed, it would have serious implications on an agreement between the Rudland brothers and van Hoogstraten last year to cooperate towards rebuilding CFI, which has been paralysed by a shareholder dogfight. The Rudlands took over shareholding in CFI through insurance giant, Zimre Holdings Limited, which they bought last year.

Van Hoogstraten claimed in his letters that there was conflict of interest in the deal after Zimre, which holds shareholding in both Fidelity and CFI, voted at the EGM to approve the Longford deal last year.

The National Social Security Authority (NSSA) was in conflict of interest when it cast its vote at the EGM, according to van Hoogstraten, who had blocked the EGM in May last year.

In the hard-hitting letters to CFI Holdings legal advisors, Honey & Blanckenberg dispatched on October 16, 2016 and exclusively obtained by C & M this week, Messina Investments director Maxmillan Hamilton, said there had been serious violations of CFI’s Memorandum and Articles of Association (M & AA) when the “fraudulent” transaction was given the green-light last year.

Hamilton is son to van Hoogstraten.

There was no full disclosure to the Zimbabwe Stock Exchange (ZSE), on which Fidelity, Zimre and CFI are listed, when the deal was sealed, Messina argued in two of the letters.

Last week, Messina was mulling approaching the Insurance and Pensions Commission and the ZSE with its grievances.

“Following on from the recent removal of the former corrupt board and senior management, we are investigating a number of what would appear to be illegal transactions,” Hamilton wrote to Honey & Blanckenberg on July 16 this year.

“In respect thereof we notice that your firm acted as legal advisors on the disposal, last year, of an 81 percent shareholding in Longford Estates by CFI Holdings Limited.

“We also notice that in 1996, your firm acted on the formation of CFI Holdings and prepared their Memorandum of Association.

“Under clause 38 of the M&AA “all business at an EGM shall be deemed special” yet there is no mention, in the circular to shareholders dated 23 September 2015, of this fact because the resolutions to dispose of this highly important asset were ordinary resolutions.”

“Furthermore, NSSA and Zimre were substantial shareholders in Fidelity Life Assurance and were therefore, conflicted, and shall not have voted on the resolutions. There was also the failure to disclose to the ZSE that this was a related party transaction. None of these very material facts were mentioned in the circular to shareholders with the result that all shareholders, apart from NSSA and Zimre, were prejudiced.

“The transaction is illegal and possibly (subject to further investigation) fraudulent,” said Hamilton.

He added; “All shareholders of CFI, other than Zimre and NSSA, were substantially defrauded due to the deliberate non-disclosure to the shareholders that Fidelity Life was a related party and that Zimre and NSSA were not legally entitled to vote on the resolution to dispose of Longfords Estate. Obviously, this illegal transaction needs to be nullified and your firm (as legal advisors) and other parties will be liable to CFI in damages.

“We suggest that you properly advise your client and then let us know what you propose or we shall be forced to advise all parties of our intention to reverse this fraudulent transaction and seek recovery of costs and damages”.

In May, CFI chief executive officer (CEO) Stephen Kuipa left the firm as the group, which had been hit by shareholder wrangling, also announced the immediate departure of chairman, Simplicius Chihambakwe. His departure followed that of another board member, P Bwerinofa, who quit the company on April 11.

Finance director, Acquiline Chinamo, also left at the end of last year.

NicozDiamond Insurance managing director, Grace Muradzikwa, was appointed acting chairperson of one of the country’s largest agro processing firms, whose fortunes had been affected by slowing turnover, sustained losses and working capital deficits over the past two years.

CFI said Timothy Nyika and Shingirai Chibhanguza would take over as acting group CEO and deputy CEO respectively.

Early this year, Messina proposed a forensic audit of the group’s affairs going back six years to ascertain ‘mismanagement and corruption’ which it said had destroyed shareholder value.

In a response to Messina, Honey & Blanckenberg said it had not been given further instruction by CFI to act on the Longford transaction.

“We confirm that we provided legal advice to CFI in respect of various issues leading up to the EGM of 16 October 2015. We have not received further instructions pertaining to the disposal of Langford Estates and therefore we are not taking any further action in the matter,” said the legal practitioners. Financial Gazette