JOHANNESBURG – Micro-lender Bridge is “factually and commercially insolvent”, according to the firm’s business rescue practitioner (BRP), George Nell, who says the company must either adopt an “amended business rescue plan” or face liquidation.
Nell, who was appointed BRP of Bridge after it was placed into business rescue in September, believes there is a “reasonable prospect” of Bridge being rescued subject to “fundamental amendments to the business rescue plan”, he says in a letter to creditors.
Around 1 000 debenture holders have invested some R1 billion into Bridge, Nell has previously told Moneyweb.
The amended plan proposes a complex compromise with debenture holders involving a debt-to-equity conversion that will restructure their rights as holders of the company’s debt.
Nell maintains that proposed changes will have “long-term value for debenture holders with a high probability of recouping their investment with returns”.
Despite Bridge lending “a paltry R3.1 million” in June, the amended business rescue plan is “very much deliverable”, according to Ryneveld van der Horst, who was appointed interim CEO of Bridge in June after Emile Aldum was suspended.
When Bridge was placed into business rescue last year September, it had capacity to extend R100 million a month into the market.
Van der Horst is CFO of 1Surance, a funeral cover provider led by Emile’s brother Maritz, who is also a director of Bridge.
The Aldum family, represented by trusts and companies, own a 60% shareholding in Bridge.
In the same letter to creditors, Van der Horst says that accepting the amended plan will enable Bridge to receive funding from an entity that it can then lend out via a special purpose vehicle.
“This is crucial to drive up lending volumes north of R10 million per month,” he says.
Creditors will vote on the amended business rescue plan at a meeting on July 24.
Non-compliance on tax
Meanwhile, according to an independent audit report from forensic auditor Andre Prakke, the complex nature of Bridge has led to serious non-compliance on tax matters, which is being urgently addressed with the South African Revenue Service (Sars).
“When this process is complete it can only then be determined what the actual liability is to Sars,” Prakke notes. He adds that “pertinent questions” regarding the February 2014 financial statements are being investigated as are the legality of “inter-related party transactions” and collections from debtors.
Under current circumstances, Bridge’s chances of survival are “slim”, according to Prakke. But the company can be rescued if it secures new funding, restructures the balance sheet and introduces a new management culture, he says.
Market changes spell trouble
To add to Bridge’s woes, considerable change is taking place in the unsecured credit and debt collecting industries in South Africa. Last week’s judgement regarding emoluments attachment orders (EAO) will make these orders more difficult to obtain, due to a ruling that EAOs must now receive proper judicial oversight and be granted in the correct jurisdiction.
Bridge and related companies were respondents in the matter and saw EAOs granted against 15 of their clients declared invalid.
Although the Constitutional Court still has to confirm the judgement, as it currently stands it could have significant adverse consequences on Bridge – and other credit providers’ – ability to collect on outstanding debt both now and in future.
Government also recently proposed a slight reduction in rates on short-term loans, which constitute the majority of the type of loans granted by Bridge. Currently capped at 5% a month, the National Credit Regulator (NCR) has proposed a cap of 5% per month on the first loan and 3% per month on subsequent loans.
It has also suggested that interest on unsecured credit transactions is lowered from 32.65% to 24.78%.
In conversation with Moneyweb, Nell made reference to changes to laws governing prescription in the National Credit Amendment Act (NCAA), suggesting it hampered the implementation of the business rescue plan.
Under the NCAA, the collection, sale and reactivation of prescribed debt are prohibited. If a creditor has made no effort to collect on outstanding debt within a period of three years, that debt prescribes and the debtor is under no obligation to repay it.
Unfortunately, a number of creditors have historically collected this debt anyway from ill-informed debtors. According to the LAC’s Mathilda Rosslee, there’s a lot of money to be made in selling prescribed debt. She says 60% of her cases involve debt that has already prescribed.
What about Cambist?
Investment platform, Cambist, which started life by selling Bridge debt to investors hungry for promised returns of 19.5%, remains suspended.
Cambist’s former parent, debtor-tracing firm OneLaw, and Bridge were both founded by Cornelius Aldum. OneLaw was placed into liquidation in January. Despite insistence that it had registered as a separate company and that the sale of cellphone contracts, as opposed to EAOs, accounted for a much larger share of contracts sold via its platform, the Cambist platform was suspended shortly after and has remained suspended since.