...as Netcare wants it liquidated for failing to service debts
WALLS are collapsing around the once-great Queen 'Mamohato Memorial Hospital (QMMH), which is now facing closure over a M223 million debt it has failed to service.
A default judgment has already been issued against the hospital, popularly known as Tšepong. It has been Lesotho's key referral hospital since it opened its doors to the public in 2011.
However, its majority shareholder; Netcare Hospital Group, and the hospital's service provider, Botle Facilities Management, want the hospital liquidated, claiming it jointly owes them M223,572,452.14.
Netcare holds a major 40 percent shareholding in a consortium that was established in terms of a public private partnership (PPP) with the government to build and run the hospital. Lesotho's Afri'nnai Health, Excel Health Services, Women Investments and D10 Investments own 20, 20, 10 and 10 percent stakes respectively in the Tšepong consortium. The PPP has since been terminated by the Lesotho government after it accused Netcare of exploitative and prejudicial practises.
Netcare also owns shares in Botle which is responsible for repairs and maintenance services at QMMH.
The two have now petitioned the Commercial Division of the High Court demanding the winding up of Tšepong to have their debt serviced. They intend to move their application on 6 August 2024.
In his founding affidavit, Netcare's general manager, Christoffel Smith, claims Tšepong has become insolvent and therefore wants the court to place it under liquidation to pay its creditors.
"Tšepong is indebted to the first to third applicants (Netcare Hospitals, Netcare Hospitals Lesotho and Botle Facilities Management) in the aggregate amount of M223,572,452.14 arising from a default judgement obtained against Tšepong on 21 May 2024," Mr Smith claims.
Justice Moroke Mokhesi had in the May default order ruled that Tšepong pays Netcare and Botle Facilities M4,817,911.45 for management services of the hospital, M59,301,951.40 for service fees, M117,245,160.03 for other service fees and 11.25 percent interest on M13,899,294.20 from the date of service of summons to the date of final payment.
Mr Smith states: "This is an application to liquidate Tšepong in terms of section 125 of the Companies Act. I am advised that in terms of section 125(1), a company shall be put into liquidation by order of court upon application by, inter alia, a shareholder or creditor of the company if the court; determines that the company is unable to pay its debts; or is satisfied that 75 percent of its issued share capital has been lost or has become useless for its business.
"I respectfully submit that both of these requirements are met in this application as; Tšepong is unable to pay its debts as contemplated by section 125(2)(b) of the Companies Act; and Tšepong has lost all of its issued share capital.
"The applicants also seek an order to appoint Mr Chavonnes Badenhorst St Claire Cooper, employed as an insolvency practitioner at CK Trust Pty Ltd, as Tšepong's liquidator in terms of section 126 of the Companies Act because it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by Tšepong."
PPP agreement
In January 2007, the government initiated a tender to replace the then ageing Queen Elizabeth II hospital. On 27 October 2008, the government signed a contract with the Tšepong Consortium to design, build, part-finance and operate the 425-bed QMMH and a gateway clinic adjacent to the hospital. The project also refurbished and re-equipped three filter clinics in Qoaling, Mabote and Likotsi, that would manage patient referrals to the hospital.
At the time the PPP agreement was signed, the upfront capital cost of the project was estimated to be M1.165 billion (US$84 million). Construction was to last two years and be followed by a 16-year operational period in which Tšepong would maintain the facilities and manage all clinical and non-clinical services within them. During this period, Tšepong would receive a 'unitary fee' from the government, set to cover all expected operational costs plus a return on debt and equity. The fee was set at M255.6 million (US$18.4 million). The use of the facility would be free for patients, except for a small co-payment for some services, 90 percent of which would be underwritten by the Ministry of Health.
Mr Smith says QMMH had employed about 900 people, 85 of whom were doctors while nurses constituted about 400 staffers. He says they were serving over 700 000 patients.
However, the government decided to terminate this agreement on 30 August 2021 after raising concerns the contract was gobbling half of Lesotho's entire health budget. The government had also complained that Netcare was reaping it off.
The Minister of Health at the time, Semano Sekatle, argued the government could no longer continue with the deal due to serious differences which had plagued it "from the very beginning".
This premature termination of the contract resulted in Netcare demanding M1.6 billion from the government for outstanding services.
Netcare's contention
Mr Smith claims Netcare had bailed out Tšepong several times when the government was failing to pay its debts to the hospital. He also claims that other shareholders never put in any money at all, but would demand a share whenever the government paid.
Apparently, fissures had erupted within the Tšepong Consortium itself with other shareholders accusing Netcare of stealing from them. They claimed the South African hospital group had taken at least M5 billion from the venture without giving them a penny.
"Tšepong has substantial and overdue claims against the government in the sum of M935,3444,952.88. Of this amount, M123,233,967.77 may have prescribed due to the board failing to authorise legal proceedings against the government for collection of this amount. A further 124,761,866.53 may have prescribed on 28 February 2020 as the board failed to authorise legal proceedings against the government for collection of this amount.
"From time to time, when the government's substantial indebtedness to Tšepong remained overdue and unpaid, Netcare Hospitals has had to periodically assume the responsibility of discharging Tšepong's obligations to pay salaries to the hospital's staff and its indebtedness to contractual trade creditors in excess of M300 million, other than to Netcare Hospital itself, in order to keep the hospital operational. That is, Tšepong's indebtedness to Netcare Hospitals increased not only in terms of the Clinical Services and the Management Agreement, but also as a result of having to provide the funding on behalf of Tšepong. Presently, M181 million remained due and owing to Netcare Hospitals by Tšepong pursuant to (Judge Mokhesi's) order.
"I point out that none of the other shareholders have ever provided any funding to Tšepong to keep the hospital operational, and they have in fact, refused to do so. However, when payments from the government did trickle in, and Netcare Hospitals was repaid its disbursements on behalf of Tšepong, the other directors (Excel, Women Investment, D10 and Afri'nnai) questioned why Netcare Hospitals was being repaid whilst they were not receiving a distribution.
"As a result, there was much discord amongst the directors and shareholders, and which discord has been broadly publicised in the media. Clearly, there is a deadlock on the board of directors of Tšepong and which affected the operations of Tšepong and its obligations under the PPP Agreement. As a result of the discord and dysfunctionality of the board, and in contravention of the Companies Act and the Shareholders Agreement, the board last approved audited annual financial statements for the year ending 2017 which reflected the government's indebtedness to Tšepong as being M407,764,430 (currently this exceeds M2 billion). Since then, no further annual financial statements have been audited and approved. Tšepong's board has not approved an annual budget."
Mr Smith contends that the government remains the only debtor to Tšepong whereas the board had done nothing to claim what was due to the company. He therefore argues that a liquidator would be able to collect what is due to the hospital and pay its creditors.
"Netcare is owed a significant amount of money by Tšepong which is also indebted to other subcontractors and suppliers.
"On 21 May 2024, Netcare Hospitals, Netcare Hospitals Lesotho and Botle obtained default judgement against Tšepong for payment in the amount of M223,572,452.14 excluding interest at the rate of 18.5 percent relating to the management services rendered at the special instance of Tšepong.
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"Tšepong does not have the funds available to make payments pursuant to this (Mokhesi) order. It is unable to settle liabilities. The PPP Agreement has been terminated. It has lost its share capital. The only way forward is for Tšepong to be wound-up so that a liquidator can take charge of the affairs, recover what is due to it and pay its creditors," Mr Smith argues.
Shareholders fallout
Meanwhile, on 21 August 2023, local shareholders who commanded a combined 60 percent shareholding in the Tšepong consortium, had unsuccessfully opposed Netcare's bid to collect the M1.6 billion it claimed it was owed by the government in a separate court application. They argued that if any money was paid to Netcare, they would not get a penny since the South African hospital group had already "siphoned" off M5 billion from the consortium without giving them anything.
Afri'nnai's director, Professor Lehlohonolo Mosotho, had argued in the Commercial Court that the local partners had never received a single penny in dividends despite the government paying out more than M5 billion for the consortium's services at the hospital. Instead, he claimed, all the money went to the Netcare Hospital Group.
However, Mr Smith had also claimed the Tšepong Consortium was insolvent and was therefore not in a position to pay its debts to Netcare and other creditors. This, he added, was why his company decided to pursue the M1.6 billion claim from the government on behalf of all the shareholders.
Nonetheless, it seems Netcare has not been able to collect any funds from the government hence the latest application to place the hospital under liquidation. But since there is no harmony in the Consortium to authorise legal action on its behalf, it seems Netcare has elected to go it alone.
Tšepong is the only respondent in this application scheduled to be before court on 6 August 2024. The other shareholders had not filed any opposing papers by the time this publication went for print.
If the liquidation bid succeeds, it will be a huge blow to Lesotho's health delivery system as Tšepong is a key pillar of the country's entire health matrix.
