‘Fictitious’ loan at Spar
• CEO signed off on sale of store twice in three weeks
JSE-listed Spar sold a Midrand store it owned to a retailer twice in three weeks in what is claimed to be an attempt to write off losses and inflate income on the accounts of one of its distribution centres.
According to documents seen by Business Day, the Mega SuperSpar in Midrand was sold for R1,000 before being sold three weeks later to the same buyer for R8m, with the second deal including the store’s Tops liquor outlet.
An investigation by lawyers later found that an “improper” bank loan raised to finance the second sale was apparently used by Spar to inflate the annual income of one of its divisions, while the company itself effectively repaid the loan in monthly instalments.
The person who signed both contracts and was in charge of the division at the time is present CEO Brett Botten.
Spar, however, said the deal was above board and the monthly payments it made to the store were to assist the buyer to turn it into a profitable venture. Spar commissioned the report in 2021 after being contacted by a small group of black retailers alleging unprofitable Spars were sold to them at inflated values, which led to them being left destitute.
Spar is primarily a wholesaler and its SA business sells food and liquor to more than 2,500 independent outlets. It owns 48 corporate stores.
The report, compiled by lawyers Harris Nupen Molebatsi, said Spar stores were sold to buyers based on the company’s “optimistic” expected future earnings for these outlets. So, the black buyers of some unprofitable stores were set up to fail.
The report did, however, also say many racism allegations
against Spar were uncorroborated. Individual reports were written for each complainant.
In the detail of one of these reports is reference to the strange circumstances of the sale of the Midrand Mega SuperSpar. In March 2018, Spar sold the store, including shopfittings, ovens, branding and tills, to existing Spar retailer Amaan Sayed. He paid a nominal R1,000 because, according to the investigation report, the store sustained a loss of R500,000 in just one month. Sayed started trading in the store at about the same time as signing the first contract.
Spar admits the store was unprofitable. The report says Sayed later discovered it was actually incurring a loss of more than R1m every month. It is not unusual for buyers of unprofitable businesses to pay sums as low as R1,000.
Nineteen days after the first contract, Sayed signed a second purchase agreement for R8m, according to contracts seen by Business Day. Botten signed the second contract a few days later. The R8m value appears to have been calculated by what the Spar store owed its distribution centre.
Spar company secretary Kevin O’Brien told Business Day the R8m was “a fair value sale” and replaced the previous sale agreement, as it included the liquor store. Sayed took a loan from WesBank for the R8m.
The report goes on to say Sayed would receive a R167,000 “marketing contribution” from Spar each month — equal to the value of the loan instalment. Spar, while recording the receipt of R8m in its books in one year, was actually paying it off over the next few years. The report said the R8m loan “appears to be improper in that it is a fiction” and was used by the Spar division, headed by Botten, to remove the debt from its books.
“It appears to be a mechanism for the South Rand Division (of Spar) not to write off the R8m that they were carrying on their books in respect of Mega SuperSpar and Spar Tops and, it is submitted, this would inflate the income statement of the division by R8m. In essence, there was no substance to the loan,” the report said.
Internal Spar documents submitted to the board by O’Brien admit this practice of being paid for the store in one year and then paying off the cost of the store could be “perceived” to be inflating income, but argue that it was “not material” in terms of the division’s earnings. He told the board in the subsequent financial years the R167,000 paid to the owner each month would show as an expense.
However, Spar told Business Day the monthly payments were just contributions to the running costs of the business to help Sayed turn around the store.
In a letter to the board by a whistle-blower, the allegation is made that the loan was created to ensure income was higher in a particular year, so that district managers received bonuses.
The report found in favour of Spar in the majority of allegations, dismissing others of favouritism towards white store owners and concluding that many of the black retailers’ allegations were uncorroborated or unfounded. It also said that Spar helped many black retailers, who were interviewed anonymously, with extended payment terms and support.
The report has, however, led to a mediation process between the unhappy retailers and their attorneys that is still going on.
Spar and O’Brien have accused Sayed of leaking the report to the media as a means of forcing a better financial settlement with them after quitting mediation efforts last week.
Richard Spoor, whose law firm has been acting for the black retailers, on Twitter characterised the saga as a way senior executives could offload ailing stores onto black owners, “in order to roll over bad debt and to keep those liabilities off the books”. Spoor stated: “This led to large-scale misrepresentation and abuse and ultimately to failure and hardship for the new owners.”
O’Brien said the loan was not fictitious. “A loan agreement was drawn up, signed by the buyer accepting the terms and conditions and put in place with the bank.” He also said no debt was moved off the books. “The sale of company assets was recognised by Spar at the time of the transaction and is accounted for in Spar’s books in the ordinary course of business.”