The future of troubled steel manufacturing company, Pula Steel seems to be getting gloomier by the day. Disputes amongst shareholders on one hand and a ‘dearth of trust’ in the judicial manager on the other are ruining efforts to revive the company.
BusinessWeek has learnt that the founding shareholders of Pula Steel, the Verma Family, have asked the High Court to relieve the company’s judicial manager, Vijay Kalyanaraman of Grant Thornton of his duties saying he has contributed to the current unfeasible state of the company and has failed to take the necessary steps to ensure its rehabilitation.
Simultaneously, the judicial manager has given notice to Pula Steel creditors and the Master of the High Court of his intention to place the company under provisional liquidation saying the turnaround plan has been foiled by the shareholders’ failure to inject fresh funds into the mothballed company.
Pula Steel, which was placed under judicial management in February this year after falling into troubles, is currently owned by BCL (67%) Verma Family (22%) with the remainder held by the Citizen Entrepreneurial Development Agency (CEDA) as well as a company called Wealth Generations.
Last month, creditors of Pula Steel who are owed P100 million, gave the judicial manager the green light to seek a P28 million injection from shareholders for the resuscitation of the company.
But the Verma Family, which found the Selebi Phikwe-based steel manufacturing company in 2012, have declined to inject any fresh capital into the company saying they have not been furnished with the proposed turnaround projections by the judicial manager. On the other hand, CEDA is also understood to have placed ‘obstructive’ conditions before they can inject any fresh capital into the company, a situation that has created friction amongst the shareholders.
BCL, through its provisional liquidator Nigel Dixon Warren, had agreed to cede its 67% shareholding to those shareholders who would have injected fresh capital into the company on a pro-rata basis.
Through their lawyers, Isa Law Firm, the Vermas have written to the Registrar of the High Court asking for a review of the judicial manager’s recommendation to place the Pula Steel under provisional liquidation.
“The judicial manager has indicated his desire to place the company under Provisional Liquidation due to lack of funding and inability of the Shareholders to meet. It is averred that the real motive is the non-payment of his fees and failure of the shareholders to inject money into the business upon his demand. What, however, is not being alluded to is the judicial manager’s role in creating the current impasse amongst the shareholders, which in essence arose from a lack of information needed to make informed decisions, the late or non-distribution of reports and timely notification of meetings to enable all shareholders to be present and forge a way forward for the company.
“These actions not only affect our Clients but Creditors in this matter and it would be remiss of our Clients not to bring this to your attention,” reads a letter from the law firm.
In his defence, Kalyanaraman denied all the allegations by the Vermas and said without an injection of funds by shareholders, it would be impossible for him not only to implement the recovery plan of Pula Steel but also to carry-out his duties, which include paying for security, insurance and his staff.
Kalyanaraman told BusinessWeek that he had given the shareholders ample time to come up with funding and they have missed the timelines.
“I have done all I can to try and rescue the situation, but without the support of the shareholders, there cannot be any meaningful progress. We cannot keep going round in circles; a decision has to be taken at some point. Without funding, Pula Steel cannot get out of this situation and neither can I do my job. I have since given 14 days’ notice as required by law to place the company under provisional liquidation,” he said.
Although BCL is currently the biggest shareholder, it is also the biggest creditor owed about P58 million from a guarantee the mining company had granted on a Pula Steel loan from a local bank.
CEDA is the second largest creditor with the agency owed P15 million in shareholder loans, Botswana Power Corporation (P10 million), Scrap Metals Suppliers (P7 million), employees (P3 million) while an Indian company that provided expatriate workers to Pula Steel is owed P6 million.
All employees were retrenched March this year when the company went under judicial management.
Pula Steel was setup at an initial cost of P130 million before an additional P53 million was injected into the firm by BCL.