MASERU — Last week’s High Court judgment to liquidate MKM might have brought relief to thousands of people but for the liquidators the battle has just begun.
Lawyers with experience in company liquidations say MKM’s size is what makes its liquidation a monumental task.
Nearly 400 000 Basotho lost their monies in MKM.
More than M400 million is involved and to trace every transaction to understand how that money was used could take years, the lawyers said this week.
Advocate Salemane Phafane, a King’s Counsel who has liquidated a number of companies in Lesotho, says just the sheer size of MKM’s operations could present a major challenge for the liquidators.
“When I heard that MKM had been liquidated I did not envy the lawyers who were going to be appointed as the liquidators because I know the challenges that are there,” says Phafane who liquidated the Lesotho Pharmaceutical Corporation (LPC), a government-owned firm, a couple of years ago.
He completed LPC’s liquidation in just over two years but says even for such a legitimate firm he still had to battle with creditors who wanted more than their fair share of the spoils.
Because of the huge of number of the people who are owed by MKM, Phafane says, there is likely to be an avalanche of claims, some of which might be dubious.
“Once a company has been liquidated you will get claims from all over the world. They will pick it up on the internet and start firing claims at you,” he says.
Phafane says the challenge is to be “very vigilant because you might end up paying people you should not be paying”.
He says during his time with the LPC liquidation he received hundreds of claims from all over the world but after a thorough verification he decided that some of them were not worth settling.
Such problems are likely to be worse in a company with so many creditors like MKM.
“The process of vetting and authenticating claims might take years and it’s quite difficult. You have to make sure that you are paying legitimate claims.” Phafane explains that the liquidation might drag on for years because some of the creditors might sue.
“The sad part is that while you will be battling such claims it is the legitimate creditors who will be suffering. In some cases you will find that after years of paying lawyers to fight the litigation the company might be worth nothing and creditors will get very little.”
Equally taxing to any liquidator is the process of tracing the debtors.
“If you look at the Lesotho Bank’s liquidation which has been ongoing for more than 10 years now you get a picture of how difficult it might be to get debtors to pay up once a company has been liquidated,” says Phafane.
The Lesotho Bank was liquidated in 1999 but its liquidators are still fighting court battles with debtors.
“While you will be chasing debtors the company’s creditors will be coming after you demanding their monies,” he adds.
South African lawyer Steven Buys, who has a practice in Lesotho and has liquidated a number of local companies, says the biggest trouble will be to get MKM directors to cooperate with the liquidators.
“Once you get their cooperation it makes your job easier because that would mean they would give you all the documents and accounts you need to trace the debtors and creditors,” Buys says.
If the directors refuse to cooperate then there is chaos, he warns.
“It makes it extremely difficult to lift the corporate veil.”
He believes that the MKM case is likely to present such a challenge because MKM directors have already shown that they want to fight the liquidation. This week MKM directors filed an application in the High Court seeking a stay of execution of the liquidation process.
Buys, who is currently liquidating Texas Oil, says once there is an order for stay of execution the liquidators won’t be able to seize all the company assets.
“A lot might happen during that time. Company assets might disappear, documents might be destroyed and accounts might be molested.”
He says what makes the MKM’s case even more complex is that “its accounts and records were not up to scratch.”
“So anything can happen to the assets,” Buys cautions.
“Investigators will have to check whether an investor indeed invested the money they claim to have
invested. Then they have to check where the money went and how it was used.”
Buys believes this will not be an easy task for MKM liquidators because there was “so much cross pollination between the companies”.
Another local lawyer who has experience in liquidation but refused to be named for professional reasons, said the MKM case is complicated because some of the company’s assets are currently held by Simon Thebe-ea-Khale, its founder.
According to a 2007 audit by PricewaterhouseCoopers commissioned by the Central Bank of Lesotho (CBL) more than 100 of MKM’s cars are registered in Thebe-ea-Khale’s name.
The battle for the liquidators, the lawyer says, will be to prove that those assets indeed belong to MKM.
“You have to lift the corporate veil to get to the bottom of this issue. You have to go beyond every transaction,” she says.
The problems with that exercise, the lawyer explains, is that the liquidator might be faced with hostility from the directors who are the subject of the investigations.
Phafane and Buys estimate that MKM’s liquidation might take as much as 10 years to complete.
“There will obviously be more court battles so the process might take very long,” Buys says.
“Maybe eight to 10 years,” quipped Phafane when asked how long he thinks it might take to liquidate MKM.
This means that MKM investors might be in for a very long wait.
But even after that long wait there is no guarantee that they will recover much of what they invested. PricewaterhouseCoopers’ audit report said MKM could not account for M300 million of the M400 million invested in the company.
The report said most of MKM’s assets are in the form of cars most of which were registered in Thebe-ea-Khale’s name.
The problem is that the cars have lost most of their value since that audit report and are unlikely to fetch much at the auctions.
The buildings are also likely to fetch their real value because they will be sold in an auction at a time when
the economy is going through a recession.