High Court judge, Omphemetse Motumise is due to hand down judgement next month in a case in which the liquidator of Lerala Mine is suing the former owner over a 53,755 carat parcel of diamonds apparently spirited out of the country and sold just before the facility’s closure in 2017.
The liquidator, Kopanang Thekiso, acting on behalf of creditors who are reportedly owed about P30 million, filed the suit after suspecting the diamonds were taken away in order to keep them from the assets other creditors would be looking at in the liquidation.
According to documents filed in court, the sale of the 53,000 carats was initiated on May 28, 2017 through a company in which Kimberly’s majority shareholder holds a major stake.
The company was to auction the stones in Antwerp, having acquired them from Kimberly at $22 per carat. Creditors believe the amount was purposefully below value as a prior sale at Lerala had fetched prices of $45 per carat.
The following day, May 29, Kimberly Diamonds told its workers operations were stopping due to lack of cash flow, resulting in 130 employees being escorted off the premises at Lerala village.
The liquidator, with the help of the Department of Mines, successfully sued to stop the process after the sale in Antwerp and the diamonds have since been in the custody of the courts there.
The companies involved in the sale of the diamonds appear related, with Lerala’s former major shareholder, Alex Alexander, apparently their ultimate beneficial owner, court documents say.
While the reserve price for the diamonds was $3.3 million (P36 million), Kimberly Diamonds sold them to two Alexander-linked companies for $1.2 million (P13 million). The firms offered to pay government $100,000 in unpaid royalties and $250,000 towards workers’ packages in return for withdrawing the court case.
In a near-empty courtroom on Monday, lawyers representing Thekiso and the two diamond trading firms crossed swords before Motumise.
The Belgian courts have reportedly said they will take direction on the matter from Motumise, whose judgement is due on December 12. Simon Bathusi representing the liquidator, told the court that the firms had not provided any convincing explanation as to why the diamonds were sold below their value.
He said under the Insolvency Act, the liquidator was entitled to set aside the transaction if he believed there was a “disposition without value,” a bankruptcy term relating to unforced and often dubious transactions made by entities ahead of liquidation. “They don’t deny that the diamonds were sold at a lower value or price and it’s not an issue (for them).
“There’s no convincing reason given why they sold them at that price.
“The liquidator sits to protect all creditors and if a transaction is seen to be something done to deny other creditors an opportunity to reap better yields, then the liquidator is entitled to say ‘let’s set this transaction aside’,” Bathusi said.
He dismissed the two firms’ argument that they were classified as secured lenders due to a loan they had made to Lerala. As secured lenders, the firms argue that they were therefore entitled to set aside the loan by holding onto the diamonds. “They have not demonstrated that there was a debt due to them,” Bathusi said. “There are some documents they have submitted but you cannot make head or tail of them.
“In addition, the sales and marketing agreement under which the stones were sold is in breach of the Precious and Semi-Precious Stones Protection Act.”
Advocate Ivan Miltz for the two firms said the case before Motumise was about whether the notice from the liquidator for setting aside the transaction had been properly served on the firms.
He said the liquidator had sent the notices via Fedex to “a secretary’s office in Hong Kong and an address in Sydney” where the defendants were not present.
“If there is no strict compliance, there’s a deprivation of rights,” he said.
“The applicant is deafeningly silent on why they did not comply with the Act, rules or procedures around serving the notice.
“Strict compliance with the law is required before the court becomes involved in property rights.”
Questioned by Motumise, Miltz said his clients had not stated how they came to know about the liquidator’s notice if it had been filed to wrong addresses.
He also said the value of the diamonds had been affected by “all types of factors” such as market fluctuations.
“There’s an explanation that the prices went down because they were getting to the remnants of the various shipments, getting to the end of run of mine which would not be as much as the initial sales,” Miltz said.
“There are also details provided of the efforts made to maximise the sale.
“It was a legitimate transaction and pricing, and the reasons provided for the value are perfectly reasonable.”
Lerala Mine, which remains closed, has a troubled history, having also shut down in February 2009 and July 2012.