Botswana supermarket chain Choppies hits PwC with US$39.5m lawsuit

BOTSWANA – Choppies Enterprises’ Senior Executives, CEO Ramachandran Ottapathu and founding member Ismail Farouk have served former auditors PricewaterhouseCoopers (PwC) with papers, suing them for R653 million (US$39.5m) for not signing off on the company’s 2018 accounts, which led to collapse in the value of their shares.

The duo, according to Fin24, filed the lawsuit at the High Court in Gaborone, Botswana’s capital alleging that PwC didn’t complete the audit in part to pressure the company to hire PwC director Rudi Binedell as head of finance.

“There was such a drop in share price due to the delay announcement. That is the damage that we are claiming.”

Choppies CEO – Ramachandran Ottapathu

PwC’s decision had far-reaching consequences for Choppies such as being suspended from Johannesburg and Botswana stock exchange after it delayed to publish its financial results for the year end-June 2019.

However, it relisted in the Botswana bourse after a 20-month suspension but still waiting for the suspension to be lifted by JSE.

The shares lost about two-thirds of their value between September 2018 and their suspension on Nov. 1 of that year.

In addition, Ottapathu was ousted for his role in the debacle, but was reinstated after a probe by Ernst & Young found that he had done nothing wrong.

“There was such a drop in share price due to the delay announcement. That is the damage that we are claiming,” said Ottapathu said by phone.

PwC was replaced as auditor by Mazars, in February 2020.

Following the accounting issues, Choppies sold supermarkets in South Africa and said it will focus on expansion in Botswana while also withdrawning from non-performing operations in markets including Kenya, Tanzania, and Mozambique.

Choppies debt woes in Kenya

In Kenya, retailer Choppies owed banks and suppliers KSH1.2 billion (US$11.05m), which it tried to settle through inventory sales before exiting the country’s market, reports Business Daily.

The retailer has revealed that the fire sale of assets last year realised KSH657 million (US$6m) —shrinking the value of its moveable assets from KSH753 million (US$6.9m) in 2019 to KSH136 million (US$1.25m) as at June 30, 2020.

Choppies said that local shareholders would take over 25 percent of the debt amounting to KSH312 million (US$2.875m).

Parin Bharatkumar Patel and Birju Pradipkumar Patel are the two directors of the Export Trading Group (ETG), which sold Ukwala Supermarkets to Choppies and became partners in a joint venture.

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The Botswana owners have also committed to personally pay 72 million Botswana Pula (US$6.2m) if further Kenya debts materialise.

“All the stores except the equipment of one store were disposed of during the financial year, and the realised amounts have been used to settle the liabilities. Choppies Enterprises Kenya Limited and Choppies Distribution Kenya Limited closed with potential liability of P132 million (US$11.5m) to which 25 percent of the amount will be borne by the local shareholders. The remaining formalities will be completed during 2021,” the company said.

The company disclosed that it had taken a loan of KSH300 million (US$2.765m) from Absa Bank Kenya, which had been used to expand its footprint that stood at 12 stores in Nairobi, six branches in Kisumu city and eight others spread across major towns including Nakuru, Kisii and Kericho before its collapse.

Payment for the three-year bank loan at an interest rate of 12.7 percent was supposed to kick in August this year.

The money was, however, secured by a corporate guarantee provided by Choppies Enterprises Limited and moveable assets.

Choppies also disclosed that it had guaranteed supplier credit to its Kenyan subsidiary to the tune of KSH77 million (US$706K).

This included money owed to Kapa Oil (US$184K), Unga Limited (US$248K), Del Monte (US$92K) and Tiger Brands (US$184K).

Sources among suppliers indicate that not all debts have been settled as they await directions on verification and clearance.

The planned closure and exit of Choppies has also sparked a tax dispute with the Kenya Revenue Authority (KRA) which sought to freeze its bank accounts to secure Sh173.3 million (US$1.59m) in taxes.

The KRA argued that Choppies was in the process of winding up business in Kenya and it might quit without settling tax obligations.

Choppies is also locked in a court battle with the Kenya Union of Commercial Food and Allied Workers over fears it may quit Kenya without settling dues of the laid-off staff.

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