Ram, Farouk’s sue PWC for P450m

The two single largest shareholders of retail giant Choppies Enterprises Limited, Ramachandran Ottapathu and Farouk Ismail, are demanding a staggering P450 million from PriceWaterhouseCoopers (PWC) Botswana and its Managing Partner Rudi Binedell for what they say was intentionally stalling release of financial results which resulted in Choppies losing over 75 percent of its market value, KEABETSWE NEWEL reports.

According to a writ of summons seen by the Botswana Gazette, on 19 March 2018, the date on which PWC made its preliminary presentation to the Choppies Audit Committee, Binedell attended a dinner with Rob Neil Matthews and Sydney Muller, who were members of the Choppies Audit Committee as well as Board of Directors of the retail chain store. The court document reveals that during this dinner, Binedell discussed with Matthews and Muller various issues relating to Choppies and PWC’s audit of Choppies for the 2018 financial year.

It is said that Muller requested that Binedell join Choppies as Group Finance Director and thereby solicited his employment by Choppies.

Subsequent to this meeting, it is revealed that Muller and/or Matthews repeated this request to Binedell and to other members of Choppies management on several occasions. In particular, the request was said to have been repeated on several occasions orally and in writing. It is said Matthews had suggested that the Choppies Board consider Binedell being given 50 million shares in Choppies under the employee share option scheme, as an incentive.

Documents allege that Ottapathu was requested by Muller and/or Matthews to formalise an offer to Binedell in writing. Muller and/or Matthews are said to have made these requests and thereby solicited the employment of Binedell when they ought to have known that this was in contravention of the Audit Agreement 2018 and that it would compromise Binedell’s independence and the independence of PWC throughout the audit.

As a result of these facts, documents allege that PWC bore an obligation, contractually and in terms of their ethical obligations, immediately to take action in accordance with International Standards on Auditing (ISA) and International Ethics Standards Board for Accountants (IESBA) Code of Ethics and report such threats to those charged with governance, and then to either resign as auditors of Choppies or, and at the very least, to remove Binedell from the audit team.

However, according to the documents, PWC and Binedell failed to do so. “Despite these facts, PWC proceeded to conduct the audit of Choppies and its subsidiaries, with the audit team as it was then constituted, led by Binedell,” the papers state.

At a board meeting on or about 17 September 2018, it is said that Binedell advised the Board of Directors of Choppies that he would not be able to finalise the audit in Botswana, South Africa and Zimbabwe due to a number of audit issues, some of which affect all regions and some of which were specific to certain regions only. The summons state that Binedell identified a number of issues of concern which he stated implicated Ottapathu’s management of Choppies.

Those issues were specifically of related party transactions, particularly Fours Cash & Carry, PPAs (Purchase Price Allocations) on assets acquired, alleged suspicious cash flows between Choppies and Devland Cash & Carry, issues with Zimbabwe Intelligence Agency (ZIA) and concerns of money laundering accusations in Zimbabwe, as well as latest provisional set of consolidated financials provided on the morning of 17 September 2018 showing a material deviation from both the previous year’s results and the budgeted figures for the 2018 financial year and reportable irregularities identified by the auditors during the audit process. Further, it is said Binedell stated that he was concerned about the lack of transparency by the management team relating to certain matters. “He stated that he was under a lot of pressure from people within his firm (specifically the PWC Africa Chief of Operations) on why he was still associated with Choppies given the ‘Zimbabwe press issues’ and that he could not afford to jeopardise the reputation of PWC. He urged the Choppies board to obtain legal advice in both South Africa and Botswana on various legal issues arising from various transactions and advice on how the board should proceed, as well as on the board’s potential exposure,” the papers read.

It is stated that Binadell was concerned that PWC felt exposed and that until such a time that the issues were resolved or explained, PWC would not sign off on the financials. He is also said to have noted that consequently, Choppies would not meet the deadline for publishing audited financial results by 30 September 2018, and also doubted that the audit would be completed by 31 October 2018.

In the summons, Ram and Farouk state that as a direct result of Binedell’s report to the Choppies Board, it was proposed that Ottapathu be suspended as CEO, that a forensic audit be conducted on Choppies and that the trading of shares on stock exchanges be suspended.

The court papers detail that Ottapathu responded fully to the issues identified by Binedell on several occasions. It is also detailed that despite Ottapathu addressing the concerns by providing all available information, explanations and documentation, Binedell and PWC remained intransigent and insisted that Choppies procure services of a forensic investigator.
Consequently, Ottapathu was suspended and a forensic investigator engaged. The shares were also suspended from trading. It is further said that PWC proceeded to make more demands, disregarding the urgency of the audit despite Choppies management making all attempts to address Binedell’s concerns. Court papers allege that as a result of Binedell’s actions, Ottapathu lost an P254 174 469 as value of the shares on the BSE and a further R416 680 on the JSE. At the same time, Ismail lost P197 325 716 on the BSE. The duo is therefore demanding damages of P450 million.

Binedell would not be drawn to comment on the matter since it is before Court.