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Cash Paymaster Services (CPS), the company previously hired by the South African Social Security Agency (Sassa) to pay social grants, agreed to go into liquidation after Sassa refused to back down over debt the company owes to Sassa. This debt includes the gains made by CPS during the contracts, which the Constitutional Court has ruled must be repaid.
Sassa agreed to prioritize some of CPS ‘debts over others and low priority debts, up to R10 million, can be negotiated at a discounted rate.
CPS, a subsidiary of Net1 listed on the JSE and Nasdaq in the United States, was contracted to pay social grants by Sassa in 2012 and the contract was extended twice, ending in September 2018 when the Post Office was made charge of grant payments. . This left CPS “in financial trouble,” Net1 CEO Herman Kotze said in a business bailout request filed with the South Gauteng Superior Court dated March 26. CPS was subsequently placed on corporate bailout in May, according to Net1’s most recent quarterly report.
Kotze then said in court documents that CPS ‘current assets amounted to about R15 million, but the company owed CPS’s main creditor Sassa about R316 million plus interest. He argued that a business rescue plan, as opposed to liquidation, was the best outcome for creditors because CPS had a pending claim of approximately R338 million (plus interest) against Sassa. This was based on “diligent and efficient” litigation, Kotze said, and this could “significantly reduce or completely offset” CPS’s liability to Sassa.
But in his court application filed in North Gauteng Superior Court on September 10, Sassa argued that there was no reasonable prospect that CPS’s lawsuit against Sassa would be successful. And even if successful, the claim would not affect CPS ‘actual responsibilities, Sassa said.
Sassa said there was a factual dispute between the two parties over the scope of CPS responsibilities.
“[Sassa] maintains that the responsibilities of [CPS] have been underestimated by an amount of R252 million (minimum) and / or by an amount of R850 million (maximum) ”, read Sassa’s court documents. This finding was made by Sassa’s auditors who checked CPS’s audit report to determine how much benefit it made from the social grants contract. The Constitutional Court has ruled that CPS cannot withhold profits and ordered the company to submit audited statements of expenses, income, and net profits earned under the contract, and Sassa obtain “independent audited verification” of CPS statements and submit this before the court.
“Accepting then, as we must, that CPS will not retain the proceeds from the illegal contract with Sassa, it follows that the proceeds are in fact a liability on CPS ‘books,” Sassa said in court documents.
Until accurate findings are obtained, Sassa said, CPS could not come up with a viable business rescue plan.
Sassa requested that the decision to enter CPS in the business rescue be annulled. Sassa promised to subordinate its debts up to R10 million if CPS is liquidated.
In response to Sassa, CPS said in its court documents filed Sept. 25 that the goal of the business rescue plan was not to bail out the company, but to ensure the best outcome for creditors.
CPS said Sassa had failed to demonstrate how the corporate bailout did not perform better for creditors than the liquidation.
But without the support of CPS’s biggest creditor, Sassa, CPS said “one is forced to grudgingly admit” that a successful business rescue plan is not possible.
“Sassa’s request to annul the corporate rescue resolution must be rejected. However, based specifically on Sassa’s commitment and commitment to subordinate its claims in liquidation in the amount of R10 million, CPS grants an order that terminates the corporate rescue procedure and that is liquidated… ”, said CPS.
The dispute over the amount of earnings CPS made is currently before the Constitutional Court. Freedom Under Law has asked the court to order CPS auditors to release all financial records so Sassa’s auditors can accurately determine CPS ‘earnings.
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