MASERU — The troubled MKM is making moves to get court proceedings suspended pending finalisation of depositors’ payout deal negotiations between the firm and the government.
The auditors firm PricewaterhouseCoopers, which investigated the MKM’s affairs, has already submitted the final report in the High Court recommending liquidation.
The central bank of Lesotho had engaged PWC to investigate MKM after the bank accused MKM of operating banking and insurance businesses without licenses.
It is illegal to operate a bank or insurance business without a licence from the central bank.
In April the Appeal Court ruled that MKM’s businesses were unlawful banking and insurance operations.
The auditors recommended that MKM be liquidated because it could not account for the M300 million of the M400 million it collected from depositors through its schemes.
They said the MKM businesses were structured like pyramid schemes meant to attract deposits and defraud the clients with promises of huge return on investments.
Lawyers for MKM and the central bank were supposed to attend court proceedings next Thursday regarding the auditors’ report which recommends that the firm be liquidated so that stranded depositors can at least get some value on the money they invested.
However MKM last week filed an application asking the High Court to suspend the court proceedings on grounds that negotiations between MKM and the government to have depositors paid-out were at an advanced stage.
“We are likely not to proceed with the case because we have already applied in court to have proceedings suspended pending finalisation of negotiations between MKM and the government,” said MKM’s lawyer Advocate Thabang Khauoe.
Khauoe told the Lesotho Times on Tuesday that negotiations were aimed at reaching agreement on how depositors could be paid out without liquidating MKM.
But the government’s involvement in negotiations is not clear because the issue is before court for determination.
Khauoe said the ongoing negotiations are between the Finance Minister Timothy Thahane, MKM directors that include managing director Simon Thebe-ea-khale and the potential MKM insurance partners Channel Life Limited.
Channel Life, a South Africa insurance company, is understood to have agreed to rescue MKM. The rescue package must however be approved by the central bank for the deal to go through.
Khauoe could not provide details about the negotiations but said: “Negotiations are now at an advanced stage.”
The Lesotho Times was the first paper to reveal that Prime Minister Pakalitha Mosisili was planning to intervene to deal with the crisis that has affected more that 400 000 people directly and indirectly. The application to suspend court proceedings was supposed to be moved on Monday but was re-scheduled for next Monday to enable central bank’s lawyers to get instructions from the central bank governor Moeketsi Senaoana.
Senaoana was said to have been out of the country.
Legal experts say ongoing negotiations do not compel the central bank to stop pursuing court proceedings because it brought the case in court in terms of the laws governing financial and insurance institutions.
It is not clear where the money to refund depositors will come from.
The auditors have already said that MKM cannot account for M300 million of the M400 million it received from depositors.
Sources say Channel Life is unlikely to help clean up the mess by paying depositors from whom it will get no value.
The other problem, financial analysts say, is that although it had potential the MKM brand had been damaged because of the problems. Apart from that there are serious corporate governance issues that have to be cleared before the Channel Life deal can come to life.
The biggest problem is that most of MKM’s assets are registered in Thebe-ea-khale’s name, which is a gross violation of the basic corporate governance issues especially for a company that deals with public money and investments.
If MKM is liquidated depositors are likely to get a small fraction of the funds they invested.
That would be disastrous for the pensioners who invested their life’s savings with the company