Choppies’ founder, Farouk Ismail and his close ally, suspended CEO, Ramachandran Ottapathu offered to lend the regional grocer up to P250 million as a bridging loan last month, papers filed at the High Court indicate.
The offer, however, was apparently linked to the board urgently calling an extraordinary general meeting (EGM) at which Ottapathu hoped to have shareholders vote not only on the bridging loan offer, but also on the board’s removal. Ottapathu, popularly known as Ram, lost a High Court suit last Friday on urgency, where he had wanted the board compelled to urgently hold an EGM. In opposing the application, the board accused Ram of rushing the EGM in order to prevent shareholders from adequately studying an upcoming forensic report into the troubles at Choppies. Preliminary results of the investigations allegedly implicate the suspended CEO in “gross misconduct”.
Since his suspension in May, Ram has been able to rally the support of more than 50% of Choppies’ shareholders for an EGM on the board’s removal. The June 24 letter with the bridging loan offer from Ram, was tied to the EGM and also carried a 24-hour deadline. The suspended CEO threatened that he would proceed with a High Court case on urgency to demand the EGM, should the deadline elapse.
Ram and Ismail, who is Choppies acting CEO and is popularly known as Farouk, control just under 35% of Choppies shares.
The pair is credited with building the group from its humble beginnings in Lobatse to a pan-African grocer with more than 200 stores in seven countries.
According to papers filed in the High Court case, Ram, through his lawyers, wrote to the board’s lawyers on June 24 noting that information had been received indicating that Choppies wanted to raise funds through a rights issue.
The suspended CEO said such a rights issue was not advisable as Choppies was still suspended on the Botswana and Johannesburg stock exchanges and was yet to release its 2018 finances. This would mean assigning a value on the shares to be offered in the rights issue would be difficult.
“Mr Ottapathu would like to suggest a different approach in respect of the need for liquidity by Choppies and that is that each of Farouk Ismail and Mr Ottapathu agree to effect bridge financing pending a rights issue in due course,” reads the proposal from Ram’s lawyers.
Ram proposed that the loan could be converted into shares or alternatively repaid from the proceeds of the rights issue, which he suggested could take place when Choppies was restored to a good standing on the stock exchanges.
He said an urgent EGM would be required to consider the bridge loan and “other matters”.
“The EGM could indeed then be held on or before July 30 and further consider the matters recorded in the Notice.
“The bridge loan could be effected immediately subject to definitive agreements being concluded.
“In the premises, Mr Ottapathu is of the view that the board should convene an EGM on an urgent basis in terms of the extant Notice, supplemented to include resolutions required to approve the bridge loan,” lawyers for the suspended CEO wrote.
The Notice, according to court papers, is a proposed list of 19 agenda items Ram sent the board on June 3, after he had secured the statutory 60% shareholder backing for an urgent EGM.
The agenda items centre around the dissolution of the current board, which suspended him in May.
Although Ram had secured the 60%, the board was able to also lobby shareholders and reduce his backing to 51%, below the threshold required by the Companies Act to force an EGM.
Responding to Ram and Farouk’s proposals, the Choppies’ board sidestepped the request for an EGM on the bridging loan and instead suggested that a board meeting could decide the proposal.
“The board will be in a position to consider the terms proposed at its next scheduled meeting.
“In order to enable the board to do so properly, Mr Ottapathu and Mr Ismail are requested to put forward a formal written proposal to the board, setting out the funding structure and its component parts, the mechanism to how they are to work and the targeted deployment of injected funds in sufficient detail for the board to make an informed decision,” lawyers wrote back.
The board also said rather than simply including the bridge loan proposal in the EGM’s agenda, a detailed circular to shareholders was required and the BSE’s listing rules were to be followed.
The board’s papers suggest Choppies missed the deadline as the response was sent on June 26, a day after Ram’s 1300hrs, June 25 cut-off.
The board’s response also appears to acknowledge that a suit had already been filed by the time it (the response) was sent.
Court papers indicate that Ram and his lawyers filed their urgent case on June 26. Farouk filed his affidavit in support of Ram’s application for the urgent EGM, a day earlier on June 25.
With the board having won the subsequent case on urgency, it is expected that the EGM will take place in August.