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Net1 UEPS Technologies It is seeking to place a subsidiary that has been ordered to pay hundreds of millions of rands to the welfare department in commercial bailout.
The company is also facing a legal challenge from a human rights organization, Freedom Under Law, which alleges that it underestimated its profits by at least R800 million and that it must also return this.
Cash Paymaster Services, which for approximately five years distributed R150 billion in welfare payments annually on behalf of the South African government, has liabilities that exceed its assets, Net1 said in a request to the South African superior court to bring CPS to the commercial rescue.
“CPS is having financial difficulties,” Herman Kotze, CEO of Net1, said in the request. “CPS is unlikely to be able to pay off all its debts.”
Welfare payments are a cornerstone of ANC efforts to reduce inequality. The development is the latest in a saga dating back to 2014, when the constitutional court ruled that the contract awarded to CPS was invalid because proper bidding procedures had not been followed. The resulting confusion threatened to disrupt payments in 2018 and cast doubt on the integrity of the government amid a series of corruption scandals.
Because the South African Social Security Agency, known as Sassa, was unable to find a replacement, CPS was allowed to continue making social assistance payments. In 2018, the constitutional court ordered the department to find a new service provider or make payments on its own. The South African Post Office now distributes the funds.
Counterclaim
In March 2018, the court ordered CPS to reimburse Sassa R316 million plus interest on payments that it said it had no right to claim. Sassa now claims that she is owed R596 million, while CPS has said the amount is R498 million, according to court documents. CPS has filed a R338 million counterclaim against Sassa for the costs it claims to incur. Sassa said in court documents that he opposes the plan to place CPS on a commercial bailout and instead wants it to be liquidated.
In a separate application to the constitutional court, Freedom Under Law requires CPS to reimburse the allegedly unreported earnings because they say the contract was invalid and the earnings are therefore unlawful. They also want auditors appointed by the welfare department to have full access to CPS financial information.
The benefit was calculated by RAiN, a company in charge of auditing CPS for Sassa. CPS and its own auditors, KPMG and Mazars, have criticized RAiN’s methods and reject their findings. – Reported by Antony Sguazzin, (c) 2020 Bloomberg LP
