Net1 UEPS Technologies is seeking to place a subsidiary that’s been ordered to repay hundreds of millions of rand to the department of welfare into business rescue.
The company is also facing a legal challenge from a human rights organisation, Freedom Under Law, which alleges that it understated its profit by at least R800-million and must repay this as well.
Cash Paymaster Services, which for about five years distributed R150-billion in welfare payments annually on behalf of government, has liabilities that exceed its assets, Net1 said in an application to the high court to take CPS into business rescue.
“CPS is financially distressed,” said Herman Kotze, Net1’s CEO, in the application. “It is unlikely that CPS will be able to pay all of its debts.”
Welfare payments are a cornerstone of the ANC’s efforts to reduce inequality. The development is the latest in a saga that spans back to 2014, when the constitutional court ruled that the contract awarded to CPS was invalid because proper tender procedures hadn’t been followed. The ensuing turmoil threatened to disrupt the payments in 2018 and cast doubt on the government’s integrity amid a series of corruption scandals. The court ruled that the minister in charge of welfare had perjured herself.
Because the South African Social Security Agency, known as Sassa, failed to find a replacement, CPS was allowed to continue making the welfare payments. In 2018, the constitutional court ordered the department to find a new service provider or make the payments itself. The South African Post Office now distributes the funds.
The court in March 2018 ordered CPS to repay Sassa R316-million plus interest for payments it said it wasn’t entitled to claim. Sassa now claims it’s owed R596-million, while CPS has said the amount is R498-million, according to the court documents. CPS has made a counterclaim of R338-million against Sassa for costs it says it incurred. Sassa said in court documents it opposes the plan to place CPS in business rescue and instead wants it liquidated.
In a separate application to the constitutional court, Freedom Under Law demands that CPS repay the allegedly unreported profit because they say the contract was invalid and the profit therefore illicit. They also want auditors appointed by the welfare department to be given full access to CPS’s financial information.
The profit was calculated by RAiN, a company commissioned to audit CPS by Sassa. CPS hired its own auditors, KPMG and Mazars. Net1 said they did not come to the same findings.
“Mazars cannot comment on any cases relating to our clients as we are bound by confidentiality, which include criticism of RAiN, the work that they have done, and the report they have issued,” said Ewald van Heerden, partner and head of quality and risk at Mazars South Africa. “Mazars would comply with any official order handed down by the court legally requiring that we give access to any working papers.” — Reported by Antony Sguazzin, (c) 2020 Bloomberg LP