AFRASIA Bank, formerly Kingdom Bank, has been sued for about US$79 million by local tycoon Zachary Wazara and his firm Spiritage Zimbabwe Limited for allegedly breaching its obligations in Valley Technologies (Private) Limited, a liquidated telecoms company which was jointly owned by the businessman and the financial institution.
The bank is being accused of fraudulently converting to its own use a client’s funds received through a facility from the African Export-Import Bank (Afrexibank). In case number 3330/14 filed at the High Court on April 23 2014, Wazara and his associate companies also claim AfrAsia failed to provide working capital to Valley Technologies as agreed in their approved business plan.
Spiritage Telecoms, VNet, Zachary Wazara, Spiritage Zimbabwe and Spiritage Business Solutions are the applicants in the case in which they are jointly claiming damages amounting to US$78 541 707.
In the court papers, AfrAsia faces accusations of diverting US$3,2 million from the US$10 million provided by Afreximbank for Spiritage’s Valley Technologies to Tetrad Investment Bank for the benefit of its directors and managers.
The bank executives allegedly dipped into the facility through a round-tripping financial arrangement which is basically a strategy in which an asset is sold to another business with the agreement that it will be repurchased by the original owner at some point in the future.
This process is sometimes used as a means of increasing the apparent amount of sales and revenue generated by the seller during a specific financial period.
Wazara, who is the fourth plaintiff, is suing the bank in conjunction with Spiritage Telecomms (Pvt) Ltd which had a 60% stake in Valley Technologies, Connect Investments (Pvt) Ltd (20%) and Vnet (Pvt) Ltd (20%) as well as Spiritage Zimbabwe Ltd and Spiritage Business Solutions (Pvt) Ltd.
Afrasia is cited as the first defendant, its former CEO Nigel Chanakira’s Crustmoon Investments (Pvt) Ltd as second respondent and Lalela Trading (Pvt) Ltd as the third respondent.
Through lawyers Kantor and Immerman, Wazara and his companies say Valley Technologies is a client of Afrasia Bank, which had agreed to perform its duties and obligations in accordance with the usual banker/client relationship.
They say the bank undertook to provide working capital to the company in accordance with an approved business plan but reneged on its obligations.
Valley Technologies and AfrAsia also had an agreement were certain sums of money were to be advanced to the company by the bank which was acting as an agent of Afreximbank.
“Contrary to such legal duties and obligations, first defendant (AfrAsia) arising from its contractual and/or banker client relationship with Valley technologies (Pvt) Limited, the first defendant failed to provide working capital to valley technologies in accordance with the timing and quantum required under the approved business plan,” read the court documents.
“…(The bank) failed to disburse the amounts secured for the benefit of Valley Technologies under the Afreximbank loan timeously, or at all.”
The plaintiffs also accuse AfrAsia of converting money approved for disbursement to valley technologies under the Afreximbank facility to its own use, as well as failing, refusing and neglecting to open security to other financial institutions willing to fund the company.
Wazara and his companies say when they threatened legal action against AfrAsia, the institution responded by proposing a settlement agreement and offering debt-for-equity-swap through which AfrAsia and Crustmoon proposed to acquire all the shares of valley technologies, which the planiffs agreed too.
In the court papers, AfrAsia faces accusations of diverting US$3,2 million from the US$10 million from Afreximbank for Spiritage’s Valley Technologies to Tetrad Investment Bank for the benefit of AfrAsia’s directors and management who then borrowed the same money through a dubious arrangement. Spiritage and its joint applicants want AfrAsia, Crustmoon Investments and Lalela Trading to pay US$10,7 million in damages arising from the guarantees they had issued.
Spiritage claims AfrAsia is still wrongfully holding onto the funds.
The applicants are also suing for loss in the value of Valley Technologies and damages arising out of the breach of the bank’s obligations in terms of facility agreements signed between the bank and the liquidated company,Spiritage is further claiming damages arising out of the breach of fiduciary duty by AfrAsia as the banker to Valley Technologies which was a client and for damages arising out of the “wrongful, fraudulent and unlawful conduct” on the part of directors of the bank and its partners appointed to the board of Valley Technologies which resulted in the winding up and liquidation of the company.
Spiritage wants to be compensated for the loss of the investment in Valley Technologies quantified to the sum of $67,8 million.
When the deal was signed, AfrAsia indicated Lalela Trading was a special purpose vehicle through which it would acquire shares in Valley Technologies, settling its dispute with Valley Technologies and its shareholders. Lalela acquired 80% of the company.
Chanakira, Happymore Mapara, Maureen Gula Ndebele, Sobusa Gula-Ndebele, Simplicius Chihambakwe and Confidence Jaricha were appointed as directors.
Between December 12, 2012 and March 18, 2013 and they ran the company.
“Based on the aforegoing, plaintiffs aver that the conduct of the first defendant, second defendant and third defendant in running the affairs of Valley Technologies through a board and officers they had appointed was reckless, negligent, unlawful and wrongful and prejudiced valley technologies and the plaintiffs as its shareholders, to the extent that Valley Technologies’s business enterprise collapsed and the loan agreement facility was non-performing and it was liquidated,” court papers say.
“Whilst Valley Technologies was under the control of first, second and third defendants’ directors, agents and nominees, its financial position deteriorated to the extent that its creditors placed it under provisional and subsequently final liquidation.”