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News Article : Questions and Answers: Alan Louis - Louis Group
Category: Views & Letters : Letters to the Editor
Author:Edited by ITInews
Email:[email protected]
Posted:26 Mar 2013

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Business Rescue with Investec, Liquidation avoided - for now that is

"To be fully investigated by independent liquidators and for any wrongdoers to be brought to justice"

Letter to the Directors

Dear Brian

Thank you for responding to my request for an interview, I am happy to submit my questions via email.

My questions are in bold below:

The Summary of the Isle of Man High Court judgment contains the following statement:

"2. The overall picture painted by the evidence revealed a history of mismanagement of some of the companies, a lack of openness and a lack of co-operation with the Financial Supervision Commission (the "Commission") and court appointed Inspectors, a lack of satisfactory explanations as to the use of investors' funds, a lack of financial information and records, a lack of documentation to evidence important transactions and the need for the causes of the insolvency and failures of the companies and for issues of grave concern (including whether (1) certain loans were made in accordance with the Offering Document (2) there had been a misapplication or misuse of investors' money and (3) there had been regulatory breaches, unlawful conduct or other wrongdoing) to be fully investigated by independent liquidators and for any wrongdoers to be brought to justice."

This was in the matter of FINANCIAL SUPERVISION COMMISSION ("the Commission") and LOUIS GROUP STRUCTURED CAPITAL LIMITED ("Structured Capital") (CHP 12/0124) and LG SP INVESTMENTS LTD ("LG SP") (CHP 12/0125) and LOUIS GROUP INTERNATIONAL (EUROPE) LIMITED ("LG Europe") (CHP 12/0126) and LOUIS GROUP SLN LIMITED ("LG SLN") (CHP 12/0138) and LOUIS GROUP STRUCTURED FUND PLC ("Fund") (CHP 12/0139) and LOUIS GROUP (IOM) LIMITED ("LG IOM") (CHP 12/0140 and CHP 12/0163) and LAM SA

My questions to the Louis Group Directors, and specifically Dr. Alan Louis, are the following:

Were the South African entities in the Louis Group, now undergoing Business Rescue proceedings, managed in the same way as the Isle of Man entities mentioned above?

On the 13 February 2013 both Brian and Alan Louis sent a letter 'Important Communication' to investors, respectively from Louis Group International and Louis Group Africa.

In these letters, where the gist is substantially the same, you assured investors that their investments in the South African Louis Group entities are safe from contagion from other entities.

In your words: '... we have deliberately ring-fenced ourselves and investors from possible knock-on or detrimental effects' (Alan's letter) and 'This means that if one entity should sustain losses, these losses cannot spill over to other entities.' (Brian's letter)

Subsequent events appear to have overtaken your version of the truth though.

If this were not the case:

Why is Gordon Wilson, Pricewaterhousecoopers - Isle of Man and an appointed inspector of the Financial Supervision Commission here 'pursuing multiple asset recovery strategies on behalf of investors and creditors of the various companies' mentioned above for an almost total £26m loss?

What are the assets that were purchased with the money from investors in the Isle of Man schemes? Please provide a list.

What happened to the unexplained loans and transfers of £5m?

In South Africa, why have investors in various schemes, (LOUIS GROUP HOTELS (SA){PTY) LIMITED (Registration no.: 2007/022165/07) LG SECURITIES (PTY)L1MITED (Registration no.: 2006/004495/07) LGI PROPERTIES ROSE (PTY) LIMITED (Registration no.: 2003/031231/07) ABELA PROPERTY INVESTMENT (PTY) LIMITED (Registration no.: 2001/017161107)) now been dragged into the quagmire with the LOUIS GROUP (SA) (PTY) LIMITED (Registration no.: 1998/005636/07)?

Alan's 13 February 2013 letter also states that Mazars International conducted an 'independent forensic reconstruction' and this report was not mentioned in some or other press article.
Mazars is the auditor for many of the Louis Group entities and therefore not completely independent.

Is it true that LG SP has never been audited?
What other Louis Group entities have never been audited?
When last were audits done on the entities mentioned herein? Please provide a list.

Is it true that a bond was registered in favour of Investec Bank over the property in the Tedima scheme without the knowledge of the investor shareholders?

Is it true that the proceeds from the sale of 'The Paddocks' scheme was not paid out to the shareholders, but instead paid to Louis Group SA and thence to Investec Bank?

What is the actual amount owed to Investec Bank?

I would appreciate a response by close of business on Monday, 25 March 2013. I will be publishing that evening.

Declaration of Interest: I am the partner of a debenture holder in the Louis Group Hotels who is also a shareholder in 'The Paddocks' scheme.

Kind regards

Brent Wilson
ITInews Editor


Answers from Alan

Dear Mr Wilson,

As I have been copied into the email, and as I am most knowledgeable of the facts, my reply below. Regrettably, I need to reply slightly more detailed given my own time pressures.

Mazars Report
The entire saga in the Isle of Man has been of grave concern to my family and I, and for this reason we appointed Mazars auditors to conduct a forensic investigation into the matter. It needs to be appreciated that Mazars were only given 3 weeks to complete the report, so we were under immense time pressures and offered (and still offer) that given more time more work can be done by Mazars if required. From the attached report, some very important pointers to bring to your attention:

" The team we appointed to do the forensic are one of the best in the UK, and substantially of much greater experience than the two individuals appointed by the Regulator. In this regard I refer you to Clause 2.1.3.
" Clause 1.3.1 - In the opinion of Mazars "there are a number of fundamental issues with the approach adopted by the Inspectors giving rise to significant concerns as to the integrity of the conclusions reached by the inspectors.
" My family and I undoubtedly came to the rescue of the Fund, at our personal expense, and in this regard I refer you to Clause 1.5.5: "The involvement of LGSP Investments (a Louis Group owned company) has ensured that the investors have not suffered as great a loss of capital as they would otherwise have suffered, despite the significant fall in the property market."

The Court Judgement
It is now 6 months since this investigation started, and there is no facts to disprove that:
" We were uncooperative;
" That there was mismanagement or regulatory breaches or unlawful conduct, etc.
" That loans were not made in accordance with the offering document (in this regard we have 2 legal opinions and an audit opinion that loans were made correctly)

Categorically stated, despite the fact that no Louis family member was ever part of the design or structure of this failed Fund, we came to the rescue of our advisors mistakes and financially prejudiced ourselves to help others.

In fact, my family and I fought this case to prevent these liquidations and to solve the problems, now this judgement (ruled on the basis of a report by 2 investigators whose integrity is gravely questioned) has caused immense problems for investors and they are now approaching us for help.

Audits of Louis Group Companies
The Louis Group of companies consist of over 100 companies globally and all companies are independently audited. The only 2 exclusions are LGSP and LGIE because they are wholly owned family companies and registered in the BVI which don't require audits. Accounting records and balance sheets of LGSP and LGIE are produced annually and these records were submitted to the IOM Regulator.

Were the South African entities in the Louis Group, now undergoing Business Rescue proceedings, managed in the same way as the Isle of Man entities mentioned above?
The IOM companies were not mismanaged, and the Mazars report is clear on this. The two investigators made these allegations, and the Judge felt this needed to be investigated. It is now 6 months and as I said nothing material has come or will come to light.
All LGSA companies are audited, and certainly not mismanaged otherwise the auditors have a duty to report any mismanagement.

It is correct that investors in LGSA are safe from contagion, our letter is correctly drafted. We have over 60 companies in South Africa, and only those 4 companies linked to LGSA were drawn into business rescue. Let's for a moment analyse why business rescue - its only because Investec required certain of our mortgage loans to be repaid when the loans expired that we wisely defaulted to business rescue for certain companies to protect the assets from facing a forced sale. Although we only have a gearing ratio of less than 55% in South Africa, we did not have R78m in immediate cash liquidity to repay Investec on our hotel mortgages (although our Hotel value exceeds R150m).

All our SA investors (including debenture holders) are covered not only to receive their capital back but also a healthy profit, with the exception only of one building in which we made a capital loss on the sale. Our track record of healthy returns to investors is well documented.

Why is Gordon Wilson, Pricewaterhousecoopers - Isle of Man and an appointed inspector of the Financial Supervision Commission here 'pursuing multiple asset recovery strategies on behalf of investors and creditors of the various companies' mentioned above for an almost total £26m loss?
The Structured Fund received in excess of £25m to invest and via Structured Capital invested these funds in over 35 property companies. By way of example: this fund was structured as a mezzanine fund with the first mortgages to banks at about an average of 78% loan to value and the 2nd tier equity top up came from the Structured Fund. When the property markets fell by 35% the Structured Fund equity top up was wiped out, but with Louis Group's help the banks were prepared to wait and help the fund recover value. That is why it was madness to liquidate the Fund.

What happened to the unexplained loans and transfers of £5m?
There is no unexplained loans of £5m. These loans were made in terms of the offering document and more than sufficient collateral provided for these loans. Refer to Mazars report.

Is it true that a bond was registered in favour of Investec Bank over the property in the Tadima scheme without the knowledge of the investor shareholders?
Certainly not. As an experienced investor yourself, no bond can be registered by a bank without the approval by resolution of the shareholders. Just as a point to note: every investor that invested R150,000 in Tadima were made instant millionaires, it was one of our most successful syndications.

Is it true that the proceeds from the sale of 'The Paddocks' scheme was not paid out to the shareholders, but instead paid to Louis Group SA and thence to Investec Bank?
Louis Group lent funds to Paddocks, not the other way around. The balance sheet is clear on this.

The amount owed to Investec?
With respect, I don't see relevance as this is confidential, suffice only to say that Investec only has 57% loan to collateral values and we are committed to fully repay all Investec debt by August 2013 and will have numerous debt free properties.

Summary
My family and I are fully committed to investors as our primary concern. In the Isle of Man alone, we withheld earnings for 4 years to assist our investors and even capitalized property companies from our own resources to provided needed help in a property crises. In South Africa, our numerous properties all did very well with the exception only of Paddocks which was the first property loss we suffered in South Africa for 3 decades.

Hope this helps in some way.

Best regards, alan

ITInews - Additional Reports and Document Sources

Visit Louis Group Public - Information website with the documents pertaining to the liquidation of Louis Group in the Isle of Man.

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