Home » General » AfrAsia Bank Faces U.S.$79 Million Lawsuit

LOCAL private firm Spiritage Zimbabwe Limited is suing AfrAsia Bank Zimbabwe for $79 million, on allegations of fraudulently converting to its own use a client’s funds received from the African Export-Import Bank.

Spiritage Zimbabwe, owned by businessman Mr Zach Wazara also dragged the financial institution to the High Court for allegedly falsifying records to the Reserve Bank of Zimbabwe to conceal non-performing loans.

AfrAsia Bank Zimbabwe (formerly Kingdom Bank) is being accused of diverting $3,2 million from the $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 round tripping arrangement.

AfrAsia, cited in court papers as first defendant, is being jointly sued with former AfrAsia chief executive Mr Nigel Chanakira’s Crustmoon Investments and Lalela Trading as second and third defendants, respectively.

Spiritage Telecoms, VNet, Mr Zachary Wazara, Spiritage Zimbabwe and Spiritage Business Solutions are the applicants in the High Court application in which they are jointly claiming damages amounting to $78 541 707.

Mr Wazara and his businesses accused AfrAsia Bank Zimbabwe of diverting Afreximbank loan funds earmarked for Valley Technologies to benefit its management and directors, among a litany of allegations in the court documents.

Spiritage and its joint applicants want AfrAsia, Crustmoon Investments and Lalela Trading to pay $10,7 million in damages arising from the guarantees they had issued, which it said AfrAsia Bank is still wrongfully holding.

The applicants are suing for loss in the value of Valley Technologies, damages arising out of the breach of the bank’s obligations in terms of facility agreements signed between AfrAsia bank and Valley technologies.

Spiritage is also claiming damages arising out of the breach of fiduciary duty owed by AfrAsia Bank as the banker to Valley Technologies as 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 Valley Technologies. Spiritage wants to be compensated for the loss of the investment in Valley Technologies quantified to the sum of $67,8 million.

In case number 3330 14 filed at the High Court on 23 April 2014, Mr Wazara and his businesses accuse AfrAsia of failing to provide working capital to Valley Technologies as agreed in line with an approved business plan.

They also alleged that AfrAsia failed to disburse amounts secured for the benefit of Valley Technologies under the Afreximbank loan timeously or at all.

AfrAsia Bank acted as the agent for funds raised by Mr Wazara from the Afreximbank which released $10 million for Valley Technologies.

The bank is further accused of failure, refusal, blocking and neglecting to open security to other financial institutions willing to provide working capital finance to Valley Technologies and using its privileged position to reinstate a working capital mandate cancelled for non-performance.

The applicants alleged that the bank misrepresented and fraudulently claimed that the central bank had imposed single obligor limits on it with respect to the $10 million Afreximbank loan such that it could only release $6,8 million when in fact first defendant (AfrAsia Bank Zimbabwe) diverted $3,2 million from the Afreximbank loan (which was cheaper money at 10,75 percent interest) and paid it to Tetrad Investment bank.

Spiritage and associates also alleged the bank replaced the loan with more expensive funds from NSSA, which prejudiced Valley Technologies, but benefited first defendant and its directorsmanagement who then borrowed the same money from Tetrad through what is known as “round tripping” or a “pass through arrangement”.

AfrAsia is also being accused of making defamatory allegations against Mr Wazara and his businesses by alleging that he misappropriated $4,7 million and causing significant emotional, reputational and commercial harm to Valley Technologies.

The financial institution took control of Valley Technologies through Lalela Trading — an investment vehicle used by the bank to effect a debt-to-equity swap for 80 percent of technology company — and failed to run it such that it was liquidated.

AfrAsia is also being accused of wrongfully and fraudulently selling the assets of Valley Technologies to a related party who wasis its own employee, director, shareholder for $98 000when they were valued above $12 million.

The bank, according to the court documents, made various fraudulent entries in relation to the loan facility which included seeking to raise unlawful or improper interest on the loan facility, seeking to raise unlawful and improper bank charges on the facility and fraudulently diverting sums of money from the Afreximbank facility intended for capital expenditure and used it to support its own working capital requirements.

“It has also emerged that the first defendant (AfrAsia Bank) had falsified its records and submissions to the Reserve Bank of Zimbabwe, its regulator in order to hide the loan agreement given to Valley Technologies, which at that time was a “non-performing” loan,” the court papers show.

Following Valley Technologies failure to settle a $21 million loan, the court papers said that AfrAsia Bank and Mr Chanakira offered a debt-for-equity swap through which the bank and Crustmoon Investments proposed to acquire all the shares in Valley Technologies from Spiritage Telecoms, VNet and Connect Investments.

In terms of the Sale of Shares Agreement, Lalela Trading acquired 80 percent of issued capital of Valley Technologies with VNet remaining with the other 20 percent subject to the option for the bank and Crustmoon to acquire the remaining equity at a later stage.

It was also agreed that the plaintiffs would be released from any obligations arising from all guarantees and sureties given by them to AfrAsia Bank as security which would be replaced with guarantees with the bank’s and those of Mr Chanakira.

All security documents lodged would be released and all the plaintiffs would be released from the guarantees.

As a result of the agreement Mr Chanakira, Mr Happymore Mapara, Mrs Maureen Gula-Ndebele, Mr Sobusa Gula-Ndebele and Mr Simplicius Chihambakwe were appointed to the Valley Technologies board.

Mr Wazara accuses AfrAsia Bank of disregarding that the bank had taken over and ran Valley technologies for six months as per agreement and issued proceedings against Mr Wazara and the technology company, to secure recovery of certain amounts allegedly due under the now defunct loan agreement.

“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,” the court documents said.

“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,” the documents said.

The failure of Valley Technologies, the court papers say, was a result of the negligent, reckless, unlawful and wrongful conduct of AfrAsia Bank, Mr Chanakira’s Crustmoon and Lalela Trading and their agents who were in control of the day to day affairs of the technology company and are thus liable for the omissions.

It is further alleged that the bank created fraudulent resolutions of the board which were used to obtain a court order for the disposal of the company’s assets, promised to pay creditors under a scheme of arrangement which it never executed and assured the Postal and Telecommunications Regulatory Authority of Zimbabwe that Valley Technologies would pay outstanding regulatory fees which it did not.

The bank is also accused of failing to pay scheduled creditors leading to the liquidation of the company and of frustrating a confirmed investment of approximately $100 million by the company’s supplier of the equipment. AfrAsia Bank, Crustmoon Investments and Lalela Trading have ten days to respond to the application.

Source : The Herald

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