ConvergeNet faces an R11 million lawsuit, stemming from its aborted attempt to take over the now-defunct Choice Technologies earlier this year.
The JSE-listed company pulled out of its proposed rescue of Choice at the 11th hour, and is now being held liable for the liquidated company's operating costs that were incurred between mid-year and this month.
However, CEO Pieter Bouwer says ConvergeNet is actually owed the money, because it paid accounts to the value of about R11 million on behalf of Choice, in terms of the rescue deal, and should have been paid back.
The matter started last October, when another listed company, Square One Solutions, filed court papers to put Choice into provisional liquidation. Square One claimed R2.8 million from Choice for work it had done.
At the time of the liquidation, Choice CEO Semela Tseka said Square One was claiming money based on a contract for cabling that was never completed.
ConvergeNet stepped in to save Choice by offering to take over the company through a scheme of arrangements, which is a court-approved agreement between a firm and its shareholders or creditors.
The proposal would have seen Choice's creditors being paid out some of the R100 million they are owed, staff retaining jobs and Choice would have continued to operate. However, in mid-year, ConvergeNet walked away from the proposed deal.
Bouwer explains one of the conditions of its proposal was the transfer of a State IT Agency contract from Choice to a joint venture (JV) company. The JV was set up by ConvergeNet to carry on with Choice's operations, because, as a result of the liquidation order, Choice was unable to continue trading.
Operating losses
Dean Botha, from Corporate Liquidators, says ConvergeNet's withdrawal from the deal led to operational losses, as the company remained open and incurred costs while he sought another rescuer.
However, despite several bids to bail out Choice, none were successful, says Botha. He is now in the process of winding up the liquidated company, and has decided to claim back the operating losses from ConvergeNet.
Johan van Greunen, a partner at law firm Van Greunen & Associates, says he has been instructed by Botha to proceed with legal action against ConvergeNet if it does not settle the amount. ConvergeNet received a letter of demand yesterday.
He explains ConvergeNet is being held liable because its offer indemnified the liquidator for any trading losses incurred while Choice's doors were kept open pending the signing of the scheme.
Van Greunen argues it was ConvergeNet's fault that the bid was not finalised and says ConvergeNet is liable, under the failed offer, to carry Choice's costs.
Bouwer argues that the company cannot be held responsible for Choice's liquidation. He says the conditions of the deal were not met, so the agreement cannot be enforced. “It will probably have to be resolved in a court of law.”
He says ConvergeNet will “pursue legal action against them in respect of our money”.
ConvergeNet's latest annual figures show it should not have any problems paying the R11 million and associated legal costs if the court finds against it. The company's latest full-year results, for the period to August 2008, indicate it generated R76.4 million through trading and had R88.7 million in the bank at the end of the year.
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