VBS Mutual Bank is slowly collecting debts owed to it and recovering its losses from corruption. Only, it’s slower than it ought to be.
No doubt there’s a morass of bureaucratic processes to be wrangled, but the challenge can’t be solved by simply throwing money and cheap labour at the problem (excuse the irony). The solution to this problem doesn’t scale easily. That’s because, in order to conceal the corruption, convoluted deals were set up to obfuscate what was really going on.
A Gauteng High Court case, Rooplal vs Firmanox (SAFLII, 20 November 2020), anecdotally illustrates how recovering VBS’s losses is not as simple as pushing paper. The real work is in untangling the contractual contingencies and their loops within loops of counter contingencies that were contracted with multiple parties.
VBS’s liquidator, Rooplal, approached the court to have a debtor, Firmanox, liquidated in order to recover a debt of about R24 million. Firmanox countered with a rebuttal of the debt, citing another contract it had with VBS and its baffling variety of conditions that would, somehow, let it off the hook.
The court saw through the smokescreen, but only after legal argy-bargy and concern for “abuse of court processes”. In other words, vast expense and time wasted. The court ordered that Firmanox be placed into final liquidation. For the VBS liquidator, that was only the end of the beginning of recovering its debt from Firmanox.
What makes this case interesting is that the related contract Firmanox relied on in its counter relates to a funding deal with it, VBS and other parties to establish a religious TV program. The complexity was borne out of not only the multifaceted relationships between the parties, but the tenuous conditions attached to each party’s obligations.
When we consult with clients on acquisition growth strategies and how to fund them, we’re mindful of the increasing complexity involved in even simple deals when bringing just one more party to the negotiating table.
Keeping acquisition and related funding deals simple is not only to smooth out the break-up of the relationship, as in the Rooplal-Firmanox case. One of the biggest reasons acquisitions fail is because of poor implementation. Literally, being unable to effectively integrate the merging organisations.
Although acquisitions can be inherently complicated, complex contract terms are anathema to successful acquisitions and funding deals. Keep the number of stakeholders low and minimise the moving parts in the deal.