Securing a court injunction at the eleventh hour, Nigussie Hailu, pioneer shareholder in East African Bottling Share Company, postponed the sale by auction, of his 11,054 shares with an estimated value of 26.2 million Br.
It was a disappointing déjà vu for the Ministry of Justice officials who were at the venue to witness the auction. That was the second time Nigusse had managed to get the auction postponed.
“We were briefing potential buyers for three days, up until yesterday,” the Ministry’s representative, head of the legal team following the case since 2007, told Fortune.
They neither received the injunction notice, nor was the Federal Courts’ Judgement Execution Directorate informed until the very last hour of Monday March 7, 2016.
On Tuesday March 8, the auction hall on the 1st floor of the Alsam-Cheleqleq building on Chad Street, around Mexico Square was full at 9.00am. The white board displaying the day’s auction at the very top read, ‘Creditor: Ministry of Justice – Debtor: Tamirat Layne et al.’ ‘Shares’ and ‘10:30am’ were written under the items and time columns respectively.
The case leading up to the scheduled auction stemmed from the corruption case 20 yrs ago, involving then Prime Minster, Tamirat Layne and accomplices including Nigussie. They were charged with illegally exporting coffee worth 4.2 million dollars and misappropriating 16,000 million dollars from Saudi billionaire Sheikh Mohammed Hussein al Amoudi. In the aftermath of that saga, the government was left short of millions of Birr. The sale of Nigussie’s shares was intended to recover a portion of that money.
But there would be no auction that day. The room emptied immediately after the auction for residential houses was over.
“I think an injunction order has been submitted yesterday,” the auctioneer said, not clearly understanding the extraordinary situation – not a single contender showed up to attend the auction for the Bottling Company’s shares.
Equally remarkable, were the intriguing letters, meetings and decisions that took place in the past few months around this particular auction and the operations of the Company in general.
The first kick came from Abinet G/Meskel and Dereje Yesuwork, shareholders that joined the company only in 2007, after buying shares from an auction. Ngussie’s 53,000 shares were up for sale then. In a letter dated February 19, 2016, the two asked the Company for an update on the number of Nigussie Hailu’s shares, also requesting that the latest value of each share be communicated to the Execution Directorate. Their case was that all of his shares should be offered for sale. The letter was copied to the Ministry of Justice and the Execution Directorate at the Federal Courts.
Following their request, the CEO of the Company sent a letter to the Execution Directorate that was in charge of carrying out the auction process. A copy of that letter was sent to the Ministry of Justice (MoJ) – the beneficiary creditor in this case.
In a nutshell, the CEO’s letter disclosed that there was no change in the value of each share, which remains a little over 2,700 Br as per the latest external auditors’ report for the fiscal year 2013/14. With regard to Nigussie Hailu’s shares, it was affirmed that the number remained 11,054, as disclosed for auction. However it also mentioned that a potential increase to over 30,000 shares is in the pipeline.
In December 2015, the Company’s shareholders meeting decided on capital retention, which allocated additional 21,570 shares to Nigussie. That decision is yet to be implemented.
It is not only implementation of capital retention pending in the administration of the Company, but capital increase decided by the shareholders’ meeting.
However, capital increase in the company was suspended by the Ministry of Trade. The MoT’s decision by the Ministry came on December 19, 2016, as Abinet, Dereje and Munir Duri a third shareholder, had requested intervention by the Ministry in lieu of minority shareholders’ protection.
That was done in accordance with the law, which demands intervention by the Ministry, if 10pc of the shareholders so demands.
“This notion is given high importance by the law,” Liku Dametw (PhD), senior practicing lawyer told Fortune.
The Ministry reached a decision and communicated the same in writing after two months.
In its reply, the existing Board was written off as illegal. Referring to article 347 (1) of Commercial Code, it is only members of a company that can manage it. In the Bottling Company’s case, members include four individuals, Nigussie Hailu, Munir Duri, Abinet G/Meskel and Dereje Yesuwork, as well as the South African Coca-Cola bottler SABCO having 84pc of the company.
But the five individuals comprising the Board of Directors individuals were: Jacques Vermeulen, and Ian Garnett members of SABCO’s executive team and Board of Directors; Xavier Selga, CEO of SABCO and member of its Board; and Herbert Nuwamany from Uganda, who has been Sales & Marketing Manager since 2013. Nigussie Hailu is the only local director.
All members of the Board, except for Nigussie, have been given one share each by SABCO.
Their standing as shareholders, however, has been challenged by Abinet, Dereje and Munir and is the ground for the complaint lodged with the MoT.
According to the legal interpretation followed by MoT, only Nigussie’s seat will remain intact.
Replacement of the foreign nationals by shareholders of the Company, is ordered to be completed in a maximum of one month.
“I find the ordering tone out of context,” said Liku. “The Ministry’s mandate does not include orders, which is the exclusive mandate of courts.”
The Ministry has a mandate to reject a request for licence renewal, if things have not been done according to the law.
SABCO has substantially changed the nature and capacity of the Company. The legal standing of East African Bottling private limited company (Plc), changed to that of Share Company (S.C.) after SABCO partnered in the same. It has also introduced expansive growth plans, which so far are being implemented on schedule.
The Company announced an eight-year investment spree of nearly nine billion Birr, intended to make Ethiopia its number one market in Africa by the year 2020. The decision is embodied in the company’s Plan 2020, which has been under implementation since the beginning of 2012.
Coca-Cola SABCO operates in six other southern and eastern African countries and five Asian countries, with a total production capacity of half a billion cases as of 2010/11. It also owns a 27-storey production building in Hong Kong.
“Such intrigue from within is a new phenomenon for the East African Bottling Share Company,” an individual closely following the situation commented. “It has passed through trials and triumphs managing things internally.”
He speculated that the crack in the closed organisational culture may end up deterring the growth plan.
The proposed capital increase however, will remain suspended for the following four months, until the company assigns an external auditor to examine a 628,073,116 million birr expense for administration and raw materials. The Ministry expects an audit report to be tabled in four months.
The Ministry’s letter was copied to the Federal Ethics of Anti Corruption Commission.
A practicing lawyer closely following the long overdue revision process of the Commercial Code finds this a typical case showing the danger of the delay.
“Had things been done on time, such a big international company would not have ended up stuck in individual and local level intrigues,” he said.
The expert finds it alarming that the Ministry decided in a manner that seemed to hit head on with the policy direction.
Attracting international brands with tested capacity in major investments is a top priority for the government. He also sees the furthest negative impact this could possibly have in the value of stock of the company – SABCO.
“The country’s higher interest and top priority have not been properly taken into consideration,” the expert said.
But, zooming into the auction case, he thought it was evident that the Ministry could benefit highly from the postponement.
If the Ministry had waited until registration of capital increase took place, it would have had the chance to recover the remaining amount of which is close to 40 million birr.
Mulugeta Ayalew, director of the Civil Cases Directorate at the Ministry was not available to comment the rationale behind pursuing the auction.
Nigussie, in desperate interest of buying time for his attempt at securing administrative intervention for justice, applied to the High Court at the eleventh hour, on March 3, 2016, requesting the court order to stop the auction.
No one at this stage knows when the auction will be revamped. It could happen any time between next week within the four months time MoT has set.
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