McCarthy must repay RAG liquidators
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By Chantelle Benjamin
A landmark court judgment in the Retail Apparel Group (RAG) case has brought certainty on the right of liquidators to claim back advanced liquidation dividends paid to creditors without giving notice and without the liquidation having been finalised.
The Durban High Court ordered motor group McCarthy to pay back an R106m interim liquidation dividend to the RAG liquidators. McCarthy had refused to repay the dividend, despite the existence of a letter from banking group FirstRand guaranteeing it would be repaid on demand.
A different outcome in the case would have rendered bank letters of undertaking in similar cases worthless, undermining liquidators' ability to pay advance dividends to deserving creditors.
McCarthy has also been notified by RAG's joint liquidators that it can expect to be downgraded from a secured creditor to a concurrent creditor after doubts were raised in the 417 inquiry about McCarthy's claim as RAG's controlling shareholder.
At the same time liquidators have indicated there are doubts about the claims of the other secured creditors in the case BOE ( part of Nedcor), FirstRand and Mariott Merchant Bank which could see them downgraded to the level of ordinary creditor.
This would mean a much larger pool, of about R300m, for ordinary creditors. This excludes the R70m already paid out to former RAG employees and creditors with a reservation of ownership claim namely those who had stock that was still sitting in properties owned by RAG at the time of liquidation and which had not been sold.
Arguing in favour of the repayment, advocate Stef du Toit, for the liquidators, said that if the motor group was allowed to keep the money "no sensible liquidator would ever pay an advance award to a creditor, even on the strength of an irrevocable letter of undertaking".
McCarthy argued that liquidators should be able to call up the claim only if it was proved to be invalid or was not secured.
Judge Peter Combrink ruled that the "liquidators in terms of the guarantee are entitled to call up the guarantee on demand and in their sole discretion without having to offer an explanation".
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