Business Hijacking

[desA]

I've been a victim of what I can only describe as a Business Hijacking.

It involves a small start-up CC, three CC members, a second CC which convinces two CC members to asset strip on its behalf - one who just happens to be wife of 2nd CC owner (their financial book-keeper to boot); & a willing attorney who provides the shotgun & bullets to provide cover for the team's activities - through numerous threats of court cases etc. The third member is left with nothing, while the gang appears to be attempting to sell up & move abroad.

Oh, lest I forget - enter large company apparently prepared to forge contract documents, cover up their activities at each turn - & a strong concern of ripped member for possible tax irregularities. This smells of a fast-paced novel.

I'd like to hear whether folks have come across this concept, operating in South Africa & their experiences.

Along the way, I'll write up my experiences & flesh out my approach to ending this nightmare scenario (after the actions have played out), with what little legal resources & teeth SA really has left. I am not a man of means, but I do have mental horsepower & testicular fortitude. This matter has almost smashed our family finances. It is unbelievable to know that people act in this way.

The journey will expose the dark underside of doing business in SA. I believe that this phenomenon may be an emerging trend in SA, as general law & order begins to crumble & unscrupulous operators fleece the unsuspecting & honest.

Small wonder international investors & companies are beginning to steer clear of SA. This nation has a dark heart!

[Dave A]

Ouch!

Partnerships certainly can be tricky.

[ians]

Happened to a mate of mine. He was in a partnership with some people making bullet proof jackets and offering specialised training all over Africa.

Got home one day from a trip, to find his flat locked with a notice on the door. they were all living large until one day his partner and the partners wife had moved all the money whatever else they could "steal" and left. He has gone from driving fancy car, living in a penthouse to riding a bicycle with no place to stay.

[desA]

Thanks Ians. What a shame.

A few questions immediately spring to mind:
What recourse does he have in SA to recover his funds?
What does he plan to do about recovery?
What happens now to the business structure that is in place?
Who is legally responsible to wind things up?
Is SARS owed moneys? If so - who foots the bill?

What will this poor fellow do now?

Some perhaps positives for him to consider:
Who owns the know-how & intellectual property wrt the jackets?
Who has the client contact list?
Could he re-energise on his own, off the client list & with another financier?

[sterne.law@gmail.com]

Regarding recourse -
The business is in SA then the jurisdiction is here, so a court can grant judgement etc.
Enforcement can be done overseas if there are assets, but it is not cheap or easy, and you have to find the assets.
A partnership is not a real entity and is not continous. It pretty much killed itself.
SARS would be owed in individual hands as a partnership is taxed as individuals.

[desA]

Thanks Anthony. A few challenges for you, in the CC described in opening post.

The business is in SA then the jurisdiction is here, so a court can grant judgement etc.

Scenario:
Business partners have used all the CC assets against the third CC member, for legal fees - & have asset-stripped the rest into the 2nd CC.

Question:
How does the 3rd CC member obtain justice in SA, without being hugely flush in ZAR?

Tell you why I ask:
In my case, I was quoted around R150 000 to sort out everything. Visits to silks etc were conducted in order to obtain the correct legal frame. The outcome - law fully in 3rd member's favour. All clear.

No problem to sort the rest out - give us around R500k - R1bar & this 'should' be sufficient to get us where we need to be. What kind of world do we live in?

Point-to-note : Hijacking Principle #1
The business hijackers use the cost of legal remedy against their victims. They use the victims' money against them, by employing attack-style attorneys who use mafia-style bully-tactics to attempt to scare away their victims. Threats of court orders, huge claims (with no basis), are used. Most victims do not have the resources, or emotional fortitude to mount a defence.

Point to note : Hijacking Principle #2
Going to civil court has absolutely nothing to do with right, or wrong - only what is winnable in the particular court, under a particular judge, on a particular day.

Point to note : Hijacking Principle #3
Litigation is all about costs versus returns. What to risk in legal outlay against the potential returns? Very much a gambling game, for the wealthy. Justice does not enter the equation.

[Dave A]

What % membership in the cc did the unfortunate 3rd member hold?

[desA]

What % membership in the cc did the unfortunate 3rd member hold?

Dave, a very valid question. 20% shareholding. The share structure was 60%, 20%, 20%.

This was a classic mistake in CC law. A minimum 'blocking' % needs to be at least 26%.

The problem was that only one business meeting was ever held between all three CC members. It would be understood that, at routine business meetings, various members voting as they see fit. This is business. The difficulty came in that when the initial challenges arose (over correct turnover declarations, operating expenses & tax due), one of the early plays by the hijack attorney, was to attempt to bar the 3rd member from meeting, or even talking to the other CC members. So, no members' meetings were ever held after that.

Based on the modus of the hijackers, even controlling interests could have been bypassed by their tactics.

Hijacker's Principle #4
Use every means to isolate the hijack victim from being able to protect their interest in the business / CC.

Ironically, the very principles used by the hijackers, in isolating the hijack victim from the hijackers are these that allow liquidation of a business, in law.

Anti-Hijack Principle #1
He who controls the money, is king!

[sterne.law@gmail.com]

Unfortunately, as pointed out, even if the law and facts support you, the question is, do you have the money and/or fortitude to go through with it.
And it's not about what your rights are or what the law says, it's what people actually do. Sad, but true.

If there are other creditors a liquidation application may be the answer. Even if stripped, the liquidators can declare it a below value sale. There is also pier ing the corporate veil.
However, critically, unless there are assets here, it may not even be worth considering. And obviously it still comes with legal costs. Liquidation do however sometimes have spin off, if you get interdicts.

On a separate note, gain its legal fees, sorry, a minority shareholder can approach the court for a 'liquidation' where there are disagreements.

[desA]

Thanks for your wise comments, Anthony.

[ians]

Unfortunately just like outstanding debts, unless you have more money than you know what to with it, you pretty screwed. If I had to calculate and I am sure most business owners would tell you the same, all the money I have been screwed out of since I started. I could have enjoyed a trip around the world, first class.

Rule no.1 in business

NEVER TRUST ANYONE.

Dave I cant give you anymore details with regards to my mate. What I can say is sometimes it is not wise to screw certain people, especially when they specialise in weapons training and gorilla warfare, it is just plain dumb. I doubt he will go the legal route.

[Justloadit]

In most times, the first loss is the cheapest.

In other words, walk away, use the new found energy in your own company.
Resign as a member of the CC, forget trying to get some bucks for the shares, you are not going to get a cent.

Once there is a letter of acceptance of the resignation, you are open to go hunting again in the same forest you were in before. Use the gained experience to make the hunt successful.

[desA]

Thanks Ians & Justloadit.

Rule no.1 in business - NEVER TRUST ANYONE.

So sad, but absolutely true.

In most times, the first loss is the cheapest.
In other words, walk away, use the new found energy in your own company.

In my case, anecdotal evidence & collected comments seem to point to these business hijackers being serial offenders, over the years. This is a strategy to make money from the unwitting & trusting.

These folks also tried to block use of a legacy, rather novel technology, in the process - while they asset-stripped, behind their attack attorney's cover. Little real chance of them being able to enforce this going forwards. (Enough said on that, for now).

Resign as a member of the CC, forget trying to get some bucks for the shares, you are not going to get a cent.

Once there is a letter of acceptance of the resignation, you are open to go hunting again in the same forest you were in before. Use the gained experience to make the hunt successful.

Absolutely, on the hunting analogy. Be a little careful on the simple CC sign-off process, however. The exiting member needs to ensure that the altered CK2A form is lodged & accepted by CIPC. Until this is done, the party remains a member of the CC. Beware if the hijackers delay submission of the CK2A, run up business debts in the meantime - cash out their gains & leave the sucker to carry the rest!

Remember, these hijacking-types are generally criminals & serial offenders - not just business-persons taking a one-off chance. The matter needs to be seen in context.

[ians]

I was screwed by Powerflow exhaust pipe manufacturer, when I moved his factory from Umilo Rd to Pinetown.

The way I understand it, (it might not be exactly as I put it but should be pretty close) he got so badly screwed by a company which apparently worked hand in hand with his auditor Michael Banks who was apparently working for an auditing company at the time, apparently this company got wind of his financial difficulties via an informant, who then became one of the managers at Pima force exhaust pipes. This I found out when I contacted the auditing company, to find he had left, so I then contacted the exhaust company to find he had become one of the partners, who apparently has since got the short end of the stick and suffered a small setback, bit of his own medicine.

My point...don't trust anyone, there are people, companies out there who specialise in f%^&* you, they will take the clothes off your back to make a quick buck.

Dave I do believe your thoughts about people targeting other people is right on the money.

[desA]

Now, what cost-effective remedies does South African Law allow the hijack victim to pursue, in terms of going on the attack?

In many cases, the chances of asset recovery are slim, if not impossible.