GovChat founder Eldrid Jordaan and his partners in K2018 have made a R50 million public offer to Capital Appreciation and other creditors to take total control of GovChat.
K2018, a black-owned 65% majority shareholder in GovChat, intends to control the remaining 35% of the business held by shareholders and its largest creditor Capital Appreciation.
Jordaan and partners made the R50 million offer on Monday, and gave Capital Appreciation and other creditors until 6pm today to accept the offer, after which it automatically lapses.
GovChat is a platform that enables citizens to engage with government on service delivery matters, and millions of people use it.
In December 2022, Capital Appreciation placed GovChat into business rescue over loans it advanced to GovChat, which did not sit well with Jordaan.
The business rescue was preceded by Jordaan’s resignation as CEO of GovChat a month prior. The organisation’s chief data officer, Goitse Konopi, also resigned.
JSE-listed fintech group Capital Appreciation initiated the rehabilitation of GovChat over R20 million (the initial loan) and R12 379 778 plus interest (the additional loan).
Capital Appreciation now has a pledge of over 72.9% of K2018’s shares in and claims against GovChat as security for the initial loan and the additional loan.
Dewald Dempers is another creditor whom K2018 is indebted to, in an amount of approximately R7.5 million. GovChat also owes other third-party creditors close to R10.7 million.
Yesterday, in a scathing statement, Jordaan said the fate of GovChat is in the hands of Capital Appreciation, and many attempts to negotiate a settlement by K2018 failed, notwithstanding that the fintech impaired its loans to GovChat.
As a result, Jordaan said on Monday that K2018 “initiated an open offer to pay in excess of R50 million to various stakeholders and creditors, including Capital Appreciation and for the business rescue practitioner to take the business out of business rescue”.
This, he said, is to “ensure the platform continues to play a vital role in facilitating communications between government and SA citizens across a broad spectrum of important services, such as access to local government, health, social services, etc”.
“The black founders have created and delivered exceptional value, including growing the usage base to over 9.5 million active users, and by creating very valuable oversight and real-time monitoring capability for use by various government departments.”
Jordaan added: “I sincerely hope the stakeholders in GovChat will give serious consideration to our offer, and will appreciate the importance of ensuring GovChat is released from business rescue so that it can operate again and actively pursue its claim against Meta.”
GovChat last year scored a victory against Facebook parent company Meta after a two-year legal battle.
The proposition
The battle with Meta began in 2020 between the social media giant and GovChat, when Facebook threatened to off-board GovChat from its WhatsApp platform, due to alleged violation of its terms of service.
Yesterday, Jordaan said GovChat has a substantial claim of $1 billion (R18 billion) for damages against Meta arising from its “unlawful and anti-competitive” action and will share the proceeds with Capital Appreciation as part of its proposal to the fintech firm.
“It is crucial that Meta’s abuse of dominance be punished and that GovChat is justifiably compensated for its losses, which are anticipated to be in excess of $1 billion,” he said.
In terms of the proposal, K2018 will make payment of the sum of R20 million to Capital Appreciation in discharge of the initial loan and the additional loan, and to secure the release of the shares held by the fintech firm.
The balance of the initial loan and the additional loan will be paid from the first proceeds due to K2018 from the Meta claim.
In the statement, K2018 says: “Capital Appreciation will be paid 35% of the proceeds of the Meta claim after the payment of all legal costs incurred in the funding of the Meta claim on behalf of GovChat.
“The Meta claim will be managed jointly by Capital Appreciation and K2018 on behalf of GovChat, and any settlement of the claim will require the consent of both Capital Appreciation and K2018. K2018’s representative for this purpose will be Neil Lazarus SC.
“Capital Appreciation will sell and transfer its 35% shareholding in GovChat to K2018 for their par value and will simultaneously cancel/reverse the Capital Appreciation pledge and cession.
“Capital Appreciation will have no involvement in the affairs of GovChat aside from its involvement in the Meta claim.”
Linking citizens to government
Despite its troubles, GovChat has been lauded for delivering public services to over 9.3 million active users.
The platform has, among other functions, enabled citizens to report municipal service issues across the country to the appropriate municipality, and allowed communities to find and connect to their ward councillor and traditional authority.
At the height of the COVID-19 pandemic, it enabled millions of South Africans to digitally apply for the South African Social Security Agency’s social relief in distress (SRD) grants.
Furthermore, it stepped in to assist citizens to direct their enquiries about the SRD grants to popular instant messaging platforms, WhatsApp and Facebook Messenger, through its fully-automated chatbot.
ITWeb reached out to Capital Appreciation for comment. However, the company had not responded by the time of publication.