StanChart and African Banking Corporation appeal against multimillion-rand judgment

Standard Chartered (StanChart) and the African Banking Corporation (ABC) are challenging a decision by the high court in Johannesburg that found the banks colluded to breach a debt-restructuring agreement that spelt the death of then JSE-listed Blue Financial Services (Blue) in 2013.

The court in August ordered StanChart and ABC to pay Mapula Solutions R704m plus interest calculated from 2016 after the court found they breached recapitalisation agreements intended to save the now defunct microfinance institution. 

Mayibuye Group, which specialised in turning around distressed businesses, invested R163m in the lender. Before ceding its rights to Mapula, Mayibuye proceeded to separate Blue’s insolvent and underperforming business from what was planned to become a new, restructured and recapitalised business, referred to as Good Bank.

StanChart and ABC were involved in the recapitalisation that would see Mayibuye buying shares worth R163m in Good Bank, and creditors including StanChart and ABC converting as much as R1.2bn of debt into equity. However, the agreement encountered problems in late 2013 when StanChart and ABC called in their loans.

ABC Zambia in November wrote to Blue demanding the company pay it $3.9m. A few days later it sent another letter of demand, and a further letter was sent by ABC to Blue demanding $4.3m.

ABC Botswana followed suit, demanding 42.8m pula (R59.8m), and said the entire loan it had advanced to Blue had become due. StanChart embarked on a similar course in November 2013, demanding R151m from Blue within five days.

The crux of the August judgment was that the lenders breached the debt-restructuring agreement when they called in the loans, which according to the court sealed Blue Financial Services’ fate.

StanChart and ABC have appealed against the decision. The lenders, in their appeal papers, claim the court erred in arriving at its conclusions.

“In the first instance, the court a quo found that the single breach (being the dispatch of a letter of demand) by the first defendant resulted in the plaintiff’s damages (on both claims),” the banks said.

“However, the court a quo has ignored that at the time the letter of demand was sent Blue’s shares were already suspended from trading on the JSE, which demonstrates that the defendants could not have caused the plaintiff’s loss (because the damage, such as it is, had already been sustained).”

Mapula, in its papers, accuses StanChart and ABC of trying to straddle two chairs.

“The defendants say they could not have breached the debt-restructuring agreement as they had obtained a judgment in their favour which is affirmation that their conduct was not a breach. That naturally means there is a binding debt-restructuring agreement on which the defendants place reliance,” the entity said.

“The defendants then advance two conflicting theories that the debt-restructuring agreement somehow became ‘inoperable’ and, for that reason, they were no longer bound to it, at a time earlier than the judgments referred to above and could therefore not have breached it. The conflicting outcome is that, on the one hand, the defendants say they were bound to the debt-restructuring agreement whereas, on the other, that they were not bound to the very same debt-restructuring agreement.”

StanChart, which is listed on the Botswana Stock Exchange, is withdrawing from several sub-Saharan African markets, a move it said was part of plans to reduce costs by more than £802m by 2024.

In July the London-based lender said it would sell its stake in subsidiaries in Angola, Cameroon, Gambia and Sierra Leone, as well as its consumer, private and business bank in Tanzania to Nigerian-based Access Bank. It also exited Zimbabwe earlier this year. 

Besides the assets from StanChart, Access Bank has also bought ABC Zambia after receiving approval from the Zambian authorities in March.

khumalok@businesslive.co.za