Choppies goes for its chopped head again

07 Jul 2019

KHONANI ONTEBETSE & MPHO KELEBOGE

A preliminary report by Deswai Law Group has recommended that the Board of suspended Choppies Enterprise chief executive officer Ramachandran Ottapathu should institute disciplinary action against him.

The report also suggests that Ottapathu may have entered into illegal transactions without authority from the Board.

This emerges from court documents that have been seen by Sunday Standard. The Deswai Law Group report titled “Report to the Board of Directors of Choppies in respect of the legal analysis and review of certain transactions involving the Fours Group of Companies and Payless Supermarket,” dated 3rd June 2019 investigated the legality of transactions.

In relation to Payless supermarket, the report found that “there may be flagrant contravention by Choppies/Mr. Ottapathu of the terms of the Competition Authority Determination and the Joint Undertaking.”

It recommended that the Competition Authority must be engaged with by the Board on an urgent basis in connection with this, after the Board ascertains facts in relation to any continuing interaction between Choppies and Payless.

In relation to Governance; there is an urgent need and requirement to overhaul the governance structure at Choppies to bring it to the best practice and standards.

“In relation to Mr. Ottapathu; the Board should on behalf of Choppies, consider the institution of disciplinary proceedings against Mr. Ottapathu in relation to the matters and reasons set out in the report,” the report says. 

It states in part “in relation to non-compliance with the various Fours Groups and Payless agreements: such non-compliance is capable of remediation by way of rectification/amendment of the agreements and/or entering into an omnibus settlement agreement in respect of the Fours Group if the Fours offer is accepted.”

The report says that “In relation to the Companies Act, there is no breach or contravention of section 130 (1)(h) of the Companies Act by Mr. Ottapathu in that Mr. Ottapathu has not competed with the Company as a result simply of acquiring the Four Group Shares into his name.”

The report also says that “In relation to BSE listing requirements (as applicable at the time): there may arguably be no technical breach or contravention of these by Mr. Ottapathu in respect of related pay obligations as we do not believe the transfer of the Fours Group shares into his name by Fours Group was for his personal benefit or use (and  the Declaration of Trust makes it clear that the Fours Group shares were and are held for the benefit of the Choppies, nor by the Company on relation to reporting and disclosure requirements as if the shares were transferred for the benefit of Choppies, the transactions underpinning the transfers were valid (and the share therefore require to be re-transferred for reasons that there was no Board resolution authorizing the transfers not monetary consideration which passed (even if the contention by Mr. Ottapathu and Fours Group that the shares were transferred as additional security is rejected).” 

The report however, states that “it is our view that the Board may consider it appropriate to engage with BSE, after the fact, for purposes of disclosure to and obtaining guidance from the BSE as to the transfer of the Fours Group.” 

In relation to the Competition Act, the report states that there may be no technical breach or contravention in relation to the transfer of the Fours Group Shares to Mr. Ottapathu.”

But the report says “it is our view that the Board may consider it appropriate to engage with the Competition Authority on a pre-emptive basis for the purposes of disclosure to obtaining guidance from the Competition Authority as to the transfer of the Fours Group.”

In papers before court, Ottapathu quotes Rizwan Desai of Desai Law Group as saying at that at one of the meetings that preliminary findings in respect of one of the investigations had resulted in a recommendation that he be suspended from his duties as CEO.

“…That as a consequence of the preliminary findings and the state of Choppies, as well as mounting pressure from third parties such as lenders and regulators, the Board found itself in the position of having to possibly weigh the possibility of considering my removal as CEO,”  he said.

Ottapathu further quoted Desai as saying “…that the lenders and the external parties specifically demanded that an action plan from the Board, though the Board itself did not believe this to be a pressing concern.” Ottapathu is challenging his suspension from Choppies and he has dragged former President and Board Chairperson Festus Mogae and other directors namely, Wilfred Mpai, Ronald Tamale, Heinrich Stander and Dorcas Kgosietsile.