With Welfare Repayment Looming, Net1 Seeks Bankruptcy Protection For Unit
(Bloomberg) --
Net1 UEPS Technologies Inc. is seeking to place a subsidiary that’s been ordered to repay tens of millions of dollars to the South African welfare department in a local form of bankruptcy protection.
The company is also facing a legal challenge from a human rights organization, Freedom Under Law, which alleges that it understated its profit by at least 800 million rand ($42 million) and must repay this as well.
Cash Paymaster Services Ltd., which for about five years distributed 150 billion rand in welfare payments annually on behalf of the South African government, has liabilities that exceed its assets, Net1 said in an application to South Africa’s High Court to take CPS into so-called business rescue.
“CPS is financially distressed,” said Herman Kotze, Net1’s chief executive officer, in the application. “It is unlikely that CPS will be able to pay all of its debts.”
Court Ruling
Welfare payments are a cornerstone of the ruling African National Congress’s efforts to reduce inequality. The development is the latest in a saga that spans back to 2014, when the Constitutional Court ruled that the contract awarded to CPS was invalid because proper tender procedures hadn’t been followed. The ensuing turmoil threatened to disrupt the payments in 2018 and cast doubt on the government’s integrity amid a series of corruption scandals.
Because the South African Social Security Agency, known as Sassa, failed to find a replacement, CPS was allowed to continue making the welfare payments. In 2018, the Constitutional Court ordered the department to find a new service provider or make the payments itself. The South African Post Office now distributes the funds.
The court in March 2018 ordered CPS to repay Sassa 316 million rand plus interest for payments it said it wasn’t entitled to claim. Sassa now claims it’s owed 596 million rand, while CPS has said the amount is 498 million rand, according to the court documents. CPS has made a counterclaim of 338 million rand against Sassa for costs it says it incurred. Sassa said in court documents it opposes the plan to place CPS in business rescue and instead wants it liquidated.
In a separate application to the Constitutional Court, Freedom Under Law demands that CPS repay the allegedly unreported profit because they say the contract was invalid and the profit therefore illicit. They also want auditors appointed by the welfare department to be given full access to CPS’s financial information.
The profit was calculated by RAiN, a company commissioned to audit CPS by Sassa. CPS and its own auditors, KPMG LLP and Mazars, have criticized RAiN’s methods and reject its findings.
For more articles like this, please visit us at bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.
©2020 Bloomberg L.P.
