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MKM in hot soup

by Lesotho Times
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MASERU — It could be the end of the road for MKM after the Court of Appeal upheld an earlier High Court ruling which said the company was operating illegally.

MKM had appealed against a High Court judgment that said the company was operating banking and insurance businesses without licenses from the central bank.

In their appeal the company said the court had erred in finding the company to be operating illegally.

They wanted the decision to be reversed.

But the Appeal Court threw out the MKM’s appeal with costs, a ruling that could pave way for the central bank to liquidate the company.

“In confirming the rule in all respects the court below was right. The appeal must therefore fail,” the judgment said.

In dismissing MKM’s appeal the Appeal Court said there was sufficient evidence placed before the High Court to prove that MKM was conducting unlawful banking and insurance businesses.

The ruling delivered last Thursday puts to an end the dispute of the status of MKM’s operations at law, declaring it a pyramid scheme as the High Court had said earlier.

The ruling could pave way for the central bank to push the petitions to liquidate the troubled company.

Their initial petitions were suspended by the courts because the matter of their legality was pending and that MKM director Simon Thebe-ea-Khale (pictured) was still testifying in another case dealing with the whereabouts of the depositors’ money.

An investigation by a private accounting firm, PricewaterhouseCoopers, revealed that of the M400 million invested by depositors the company could only account for M100 million which was held in assets.

The auditors said MKM was insolvent because the liabilities were more than the assets.

Some of the main assets include land, buildings and cars.

But most of the valuable assets are registered in Thebe-ea-Khale’s name, a situation that could complicate the case if the central bank decides to liquidate the assets to pay depositors.

The Court of Appeal’s ruling in favour of the central bank could have opened the way for the process to liquidate the company to raise the funds to repay the 164 000 depositors who were left stranded after the company was shut down in November 2007.

A source in the bank said the ruling “opens the gates for them to liquidate” the company.

“It’s a step closer,” said the source.

But for the liquidation to take place the central bank has to prove that it is necessary in court.

Thebe-ea-Khale could not be reached for a comment but sources at the company said he was hoping to negotiate an arrangement with the Minister of Finance, Timothy Thahane, to avoid the liquidation.

Thebe-ea-Khale, the sources said, is hoping that his bail-out deal with South African insurance company Channel Life Limited will convince the minister and the central bank to spare the axe on the company.

MKM signed a deal with Channel Life last year for an undisclosed cash injection into the company.

The deal will however need the approval of the central bank.

Channel Life will come in as an insurer but will need to get an operating licence from the central bank.

Yet even if this deal is sealed the central bank still doubts that Channel Life will take over MKM’s obligations to the depositors which amount to M1.02 billion based on the 60 percent return rate that it promised.

The MKM’s lawyer Advocate Thabang Khauoe could not be reached for comment but had earlier told the Lesotho Times that if MKM lost the appeal the liquidation petitions could still not be heard because Thebe-ea-Khale was still testifying in court.

Khauoe said the petitions could only be heard after completion of Thebe-ea-Khale’s testimony.

The High Court is expected to reconvene next Wednesday for Thebe-ea-Khale’s testimony before Justice Guni.

This case has however not precluded the central bank from preparing for the liquidation.

Officials at the central bank are however insisting that this case marks the beginning of the end for MKM.

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