JSE-listed Hudaco has agreed to settle its legal proceedings against Bravura Equity Services (BES), Cadiz Holdings and certain other entities in the BES and Cadiz groups, as well as certain BES executives and former executives of Cadiz.
This is in exchange for the payment of R35-million on September 4, in settlement of a damages claim instituted by the Hudaco group to recover tax paid by Hudaco.
Hudaco instituted the legal proceedings in November 2015 with the aim of recovering as much as possible of a R132-million payment by Hudaco to the South African Revenue Services (Sars), in settlement of a challenge under the general anti-avoidance rule, and pertaining to the financing arrangements for Hudaco’s 2007 black economic empowerment (BEE) transaction.
The Hudaco board previously said it believed it had been wronged.
However, it reported in a statement to shareholders on August 31 that, "having earnestly pursued the litigation and having engaged in extensive negotiations with the defendants, the Hudaco board has concluded that it has become expedient to settle the claim, albeit for very much less than the amount claimed".
It noted that this was in the context that Hudaco was satisfied that its original ethical objectives in launching the action had been achieved and that the defendants had impressed upon Hudaco that they were not in a position to make a larger payment.
Therefore, even if Hudaco were to succeed in its action, any award made by the court would probably prove irrecoverable, the company noted.
In this context, Hudaco said it was cognisant of the fact that the entities against which the action had been brought were no longer operating.
Moreover, it noted that the management time that would be required to run the case would be very considerable, particularly as the matter was highly complex.
"The board believes management time can be better spent focusing on Hudaco’s core business, especially in light of the prevailing economic conditions and the challenges posed by the Covid-19 pandemic."
Other factors that informed the decisions entailed the repudiation by Bravura’s insurers of the professional indemnity claim by BES, BES group companies and BES executives; normal legal risk in a highly complex matter of this nature; and the considerable legal costs (estimated at an additional R15-million) that would be incurred in running the case to its conclusion, potentially without return.
"After careful consideration of all relevant factors, the board is of the opinion that, under the circumstances, rather than to pursue what is now a 13-year-old matter with limited prospects of recovery, it is preferable to accept the settlement and avoid the legal costs, thereby leaving the group R50-million better off," Hudaco said.
The company highlighted that Hudaco’s BEE shareholders were not affected in any way by the settlement with Sars and that Hudaco’s BEE credentials remain in place.