R3.5m VAT dispute heats up

Eyethu Mall at Orange Farm. Members of the community and investors are in dispute over a VAT refund. Photo: Simphiwe Mbokazi

Eyethu Mall at Orange Farm. Members of the community and investors are in dispute over a VAT refund. Photo: Simphiwe Mbokazi

Published Jan 16, 2017

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Johannesburg - The National Empowerment Fund (NEF) is embroiled in a legal tangle with a trust set up to benefit the community of Orange Farm over a R3.5 million VAT refund.

In 2013, the NEF provided a R50 million loan to the Orange Farm Community Trust for its 10 percent equity stake in the 27 000m² Eyethu Orange Farm mall.

The R500 million mall opened amid fanfare in 2014 and houses 44 stores at an average rental per m² of R117.17 during its first year of operation.

The other shareholders in the mall are Dipula Income Fund, Stretford Land Developers and Flanagan and Gerard Investments - all three companies hold a 30 percent stake each.

On Friday the two parties squared off in the South Gauteng High Court. However, the matter was struck off the roll as the NEF was found to have brought the matter to the wrong court.

Read also:  Mall to bear fruit in Orange Farm

At the heart of the dispute is the contention by the trust that it had entered into an unfavourable loan agreement with the NEF, and wanted to terminate the relationship as the community had not accrued any benefits from the relationship.

Suzan Mosia, one of the trustees, alleged the NEF had refused the trust's offer to settle the loan amount after it had sourced favourable refinancing facilities from two banks.

Refinance

“The trustees decided that we could not continue business as usual, and that we must scour the private sector to refinance our stake in the venture. But the NEF refused to give us the settlement amount after we had secured backing from two banks” said Mosia.

She said the trust was in the dark about the financial status of the mall, as they had not received financial statements to date.

As part of the agreement between the NEF and the trust, money owed to the NEF should be repaid in 156 monthly instalments.

Some clauses in the loan agreement bring into question the trust’s argument that it was entitled to keep the VAT refund, such as: “The borrower shall be obliged to use all monies received as distributions to repay the loan facility.”

With regard to VAT, the loan agreement said: “When the borrower receives a VAT refund in respect of the joint venture, the borrower shall utilise all such VAT refund/credit toward the repayment of the loan facility within 48 hours of receipt of such VAT refund/credit.”

Mosia was on Friday adamant that the trustees were not given sufficient time to go through the loan agreement before they signed it. She accused the NEF of using unscrupulous methods.

“The NEF had said it would workshop us, so that we could understand the terms of the agreement, but they never did. The loan agreement favours them at the expense of the community,” she said.

A spokesman for the NEF could not comment as he said he was on leave.

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