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…Netcare filed for bankruptcy liquidation due to inability to repay debts
Morosi Zian
WestALLS is crumbling around the once-glorious Queen Mamohato Memorial Hospital (QMMH), which faces closure after failing to repay a RM223 million debt.
The hospital, commonly known as Tšepong, has been sentenced in absentia. It has been the main referral hospital in Lesotho since it opened to the public in 2011.
However, its majority shareholder Netcare Hospitals Group and hospital services provider Botle Facilities Management want to liquidate the hospital, claiming the hospital collectively owes them M223,572,452.14.
Netcare holds a 40% stake in a consortium that was formed with the government in a public-private partnership (PPP) to build and operate the hospital. Lesotho-based Afri’nnai Health, Excel Health Services, Women Investments and D10 Investments hold 20%, 20%, 10% and 10% of the Tšepong consortium respectively. The Lesotho government terminated the PPP relationship after accusing Netcare of exploitative and biased practices.
Netcare also owns a stake in Botle, which is responsible for QMMH’s repair and maintenance services.
The two have now filed a petition in the High Court Commercial Division, seeking to wind up Tšepong to pay its debts. They intend to file the application on August 6, 2024.
Netcare managing director Christoffel Smith claimed in his founding affidavit that Tšepong was insolvent and therefore wanted the court to liquidate it to repay creditors.
“Tšepong owes the first to third applicants (Netcare Hospitals, Netcare Hospitals Lesotho and Botle Facilities Management) a total of M223,572,452.14, which arose as a result of the default judgment. against Tšepong on May 21, 2024,” Mr Smith claimed.
Judge Moroke Mokhesi, in a default judgment in May, ordered Tšepong to pay Netcare and Botle Facilities MZ$4,817,911.45 in hospital management service fees, MZ$59,301,951.40 in service fees, MZ$117,245,160.03 in other service fees and MZ$13,899,294.20 with interest at 11.25% for a period from the date of service of the summons until the date of final payment.
Mr Smith said: “This is an application for the winding up of Tšepong under section 125 of the Companies Act. I am informed that under section 125(1) a company shall be wound up by order of the court on the application of a shareholder or creditor of the company if the court finds that the company is insolvent; or is satisfied that 75% of its issued share capital has been lost or is useless to its business.
“I hereby submit this application because Tšepong is unable to repay its debts under section 125(2)(b) of the Companies Act; and Tšepong has lost all of its issued share capital.
“The applicants also seek an order appointing Mr Chavonnes Badenhorst St Claire Cooper, receiver of CK Trust Pty Ltd, as liquidator of Tšepong pursuant to section 126 of the Corporations Act as is necessary or expedient to preserve the value of the assets owned or managed by Tšepong.”
PPP protocol
IIn January 2007, the government launched a tender to replace the then aging Queen Elizabeth II Hospital. On 27 October 2008, the government signed a contract with the Tšepong Consortium to design, build, part-finance and operate the 425-bed QMMH and a gateway clinic adjacent to the hospital. The project also refurbished and re-equipped three filter clinics in Qoaling, Mabote and Likotsi to manage patient referrals from the hospital.
At the time the PPP agreement was signed, the project’s upfront capital cost was estimated at RM1.165 billion (US$84 million). The construction period will be two years, followed by a 16-year operating period, during which Tšepong will maintain the facilities and manage all clinical and non-clinical services within them. During this period, Tšepong will receive a “flat fee” from the government to cover all expected operating costs and debt and equity returns. The fee was set at RM255.6 million (US$18.4 million). Patients can use the facility free of charge, but certain services are subject to a small co-payment, 90% of which will be borne by the Ministry of Health.
Mr. Smith said the Mary Mary Hospital employs about 900 staff, 85 of whom are doctors, while nurses account for about 400. He said they serve more than 700,000 patients.
However, the government feared that the contract would eat up half of Lesotho’s health budget and therefore decided to terminate the agreement on August 30, 2021. The government also complained that Netcare was profiting from it.
Then-Health Minister Semano Sekatle said the government could not proceed with the agreement because of deep disagreements “from the outset”.
Early termination The contract resulted in Netcare demanding RM1.6 billion from the government as outstanding service charges.
Netcare’s argument
riceMr Smith claimed Netcare had bailed out Tšepong several times when the government could not repay the hospital’s debts. He also claimed other shareholders had never put in any money but demanded a share of the shares as long as the government paid.
Apparently, there are divisions within the Tšepong consortium, with other shareholders accusing Netcare of stealing their money. They claim the South African hospital group took at least RM5 billion from the joint venture without giving them a penny.
“Tšepong has a large and overdue claim against the government totalling BND935,3444,952.88. Of this, BND123,233,967.77 may have lapsed as the board did not authorise legal proceedings against the government to collect this amount. Another BND124,761,866.53 may have lapsed on February 28, 2020 as the board did not authorise legal proceedings against the government to collect this amount.
“At times, when the government’s huge debt to Tšepong was overdue, Netcare Hospitals had to regularly shoulder the responsibility of meeting Tšepong’s obligations to pay wages to hospital staff and repaying debts to contractual trade creditors (other than Netcare Hospitals itself) in excess of RM300 million to keep the hospital running. That is, Tšepong’s debt to Netcare Hospitals increased not only in terms of clinical services and the management agreement, but also because of the funding that had to be provided on Tšepong’s behalf. Currently, under (Judge Mokhesi’s) order, Tšepong still owes Netcare Hospitals RM181 million.
“I would like to point out that the other shareholders never provided any funds to Tšepong to keep the hospitals running and, in fact, refused to do so. However, when the government payments trickled in and Netcare Hospitals reimbursed Tšepong for its expenditures on its behalf, the other directors (Excel, Women Investment, D10 and Afri’nnai) questioned why Netcare Hospitals was being reimbursed while they did not receive their allocations.
“As a result, a number of discords have arisen between directors and shareholders, which have been widely reported in the media. Apparently, the Tšepong Board has reached an impasse, which has affected Tšepong’s operations and its obligations under the PPP agreement. As a result of the discord and dereliction of duty on the Board, as well as violations of the Companies Act and the Shareholders Agreement, the Board recently approved audited financial statements for the year ending 2017 which showed a debt owed to Tšepong by the government of DM407,764,430 (currently over DM2 billion). Since then, no annual financial statements have been audited and approved. The Tšepong Board has yet to approve an annual budget.”
Mr Smith argued that the government remained Tšepong’s sole debtor and that the board had taken no action to collect the debts due to the company. Therefore, he believed the liquidator would be able to recover the debts due to the hospital and repay creditors.
“Tšepong owes Netcare a large sum of money, while Netcare also owes debts to other subcontractors and suppliers.
“On May 21, 2024, Netcare Hospitals, Netcare Hospitals Lesotho and Botle obtained a default judgment against Tšepong for the payment of M223,572,452.14, exclusive of interest of 18.5% in relation to management services provided in Tšepong’s special instance.
“Tšepong has no funds to make payments under this (Mokhesi) order. It cannot pay its debts. The PPP agreement has terminated. It has lost its share capital. The only way out is for Tšepong to be wound up so that a liquidator can take over the affairs, recover the monies due to it and repay its creditors,” Mr Smith argued.
Shareholder Impact
riceAt the same time, on August 21, 2023, The Tšepong consortium, which together hold 60 per cent of the shares, had unsuccessfully opposed Netcare’s bid to recover RM1.6 billion it claimed the government owed them in a separate court application. They argued that if any payment was made to Netcare, they would not get a penny because the South African hospital group had already “siphoned” RM5 billion from the consortium without giving them anything.
Afri’nnai director Professor Lehlohonolo Mosotho argued in the Commercial Court that despite the government paying more than RM5 billion for the consortium’s services at the hospital, the local partner never received a penny in dividends. Instead, he claimed, all the money went to the Netcare Hospitals Group.
However, Mr Smith also claimed that the Tšepong consortium was bankrupt and therefore unable to repay its debts to Netcare and other creditors. He added that this was why his company decided to pursue the RM1.6 billion debt from the government on behalf of all shareholders.
Despite this, Netcare does not appear to have been able to raise any funds from the government, hence the latest application to put the hospital into liquidation. But with no agreement within the alliance to authorise it to take legal action, Netcare appears to have chosen to act alone.
Tšepong is the sole respondent in the application and is scheduled to appear in court on August 6, 2024. As of the time of going to press, no other shareholders have filed any opposition documents.
If the liquidation offer is successful, it will be a huge blow to Lesotho’s healthcare system as Tšepong is a key pillar of the country’s entire health system.
Posts Is the road to Cepeng coming to an end? First appeared in lesotho times.
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