MEMORANDUM TO CABINET

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MKM history bundle page 730 MEMORANDUM TO CABINET From: Minister of Law, Constitutional Affairs and Human Rights Date : 4 th April, 2014 About: Winding-up of MKM The Way Forward Executive Summary There are, at last, promising signs of a reasonable solution that will bring a close to this matter. In view of the national importance of the MKM issue it is recommended that the proposals be explained to the full cabinet at its informal meeting where there can be open discussions on this matter which will enable the Cabinet to make an informed decision. Background MKM was put into Provisional Liquidation in May 2011 and Messrs D G Roberts and S. Cooper were appointed as Provisional Liquidators to administer several of MKM companies namely MKM Marketing LTD, Star Lion Insurance LTD, Star Lion Gold Coin Investments, Star Lion Group LTD. Later on, all these companies were merged into one estate namely MKM/Starlion Group Estate. After the order for provisional liquidation, there has since then been a series of court cases on different matters pertaining to MKM/Starlion Group Estates, among them, a case in which the appointment of provisional liquidators was challenged. This matter took a long time until it was eventually decided by the Court of Appeal in October 2013. The Court of Appeal ruled that the Provisional Liquidators were properly appointed. It is after this judgement that the Provisional Liquidators are sure of their position in MKM/Starlion Group Estate and have approached the office of the Master of the High Court to propose a way forward in this matter. This was done in the light of the fact that the issue of MKM has dragged for a long time due to the Court cases and that it has adversely affected a multitude of Basotho Citizens throughout the country. The Provisional Liquidators have proposed several plans alternative to normal liquidation processes to deal with the matter, while ensuring that legal requirements are met and that whatever plan is agreed upon, should satisfy the creditors who invested in MKM s several schemes.

MKM history bundle page 731 2 When looking at the proposed plans, it was realised that in order for some or either of those plans to work, Government has to be involved and make certain commitments, hence the request for presentation to Cabinet Informal. Presentation on Proposed solutions by the Provisional Liquidators The liquidators have submitted a detailed report to the Master of the High Court, and have met with the Minister of Law, Constitutional Affairs and Human Rights with a view to enquire about the attitude of government which must be decided by the full cabinet. Agenda The presentation to the informal cabinet meeting will cover the following topics: Basic realities to be accepted by all 1. An MKM bail out is not possible and this must be made clear. 2. MKM was a pyramid scheme and it is not possible for creditors to get all their money back. 3. Thousands of Basotho are still suffering and it is urgent to find a responsible way to pay them at least part of their loss as soon as possible. 4. Government cannot be expected to provide any money and is not asked for money to fund the proposals; 5. The liquidation and administration costs are high because of lengthy unnecessary litigation and because MKM did not keep proper books and records. 6. The liquidators have a legal duty to wind up the estate and sell the assets. Although they must make the decision, they prefer to first consult with government to ascertain their views and preference. Key Facts and Figures 7. The key facts are:

MKM history bundle page 732 7.1. There are 37 677 investors whose transactions have been examined and quantified; 3 7.2. Of those, 9 035 are losers with claims against the estate of some M128 Million; 7.3. There are 28 642 winners who made a profit of some M415 Million and are debtors of the estate. 7.4. The cost to the estate of the investigation and quantification project, at the rates approved by the Master in November 2011, is M98 Million. The account will be reduced to M50 Million if it is paid by end June 2014. The 5 plans 8. There are five plans from Plan A to Plan E. The plans will be fully explained during the presentation and the pros and cons of each will be discussed. The key points of each plan are briefly listed below. Plan A 9. This is full liquidation as provided by law. It will include inter alia: 9.1. Selling all the properties by public auction; 9.2. Full forensic investigation and a commission of enquiry into irregularities committed in the management of MKM; 9.3. Taking legal action against the MKM directors and managers, to recover any illgotten gains; 9.4. Taking legal action against all the winners who received more from MKM than they invested; 10. Such a full liquidation is expected to take up to ten years, and the costs to the estate will be very high.

MKM history bundle page 733 4 11. It is unknown how much can be recovered or how long it will take. It is estimated that full liquidation may enable the liquidators, after about ten years, to pay creditors up to 80% of their loss. It could be much less, depending on how much can really be recovered from the winners. The risk is high. Plan B 12. This is a limited recovery plan without forensic investigation and commission of enquiry, without legal action against MKM directors and managers, and without legal action against all the winners who received more from MKM than they invested. 13. The property will be sold at leisure and the proceeds will not be available by end June 2014. 14. The investigation and quantification account of M98 Million will have to be paid in full because the estate will not qualify for the early payment discount. 15. Creditors may be paid about 6% of their loss. Plan C 16. Same as Plan B, but the sales of property will be done on an urgent basis to ensure that the proceeds are available by end June 2014. There are a number of buyers, with available funding, who are interested. Now is a good time to sell. 17. The estate will pay only M50 Million and more will be available for creditors, who may then receive about 33% of their loss. Plan D 18. A new company is formed to buy the estate properties with money borrowed from commercial banks. The MKM creditors will hold the shares in this company. Government must rent the office space and provide a guarantee that it will continue to

MKM history bundle page 734 5 pay rent for the office space for 15 years. 19. Creditors will still get paid about 33% of their loss, but will also hold shares. After some years when the company has repaid the bank loans, the company will be able to pay dividends to the creditors who own the shares. Plan E 20. Same as Plan E but two further companies are formed, for example: 20.1. MKM Insurance, to issue burial insurance policies and manage the money; and 20.2. MKM Funerals, to bury the dead. 21. This will require a complex set of commercial arrangements, including a registered and approved insurance company and proper management for all the companies. It is uncertain whether this plan can be implemented by end June 2014. Some issues for debate 22. During the presentation when the five plans are explained, attention will also be given to certain important aspects that government must consider. Questions will be asked and answered and it is desirable that consensus be reached on the way forward. Some of the issues to be debated include: 22.1. Is it fair to expect creditors to wait another ten years? 22.2. Is it fair to sue investors who made a profit and cannot afford to repay? 22.3. Will the cost of the full liquidation steps of Plan A be justified by the amounts recovered? 22.4. Should the properties be sold urgently to qualify for the discount on M98 Million investigation and quantification account?

MKM history bundle page 735 6 22.5. Does government need office space and is Plan D attractive to government? 22.6. Who will manage the Plan D company? 22.7. How will the creditor / shareholders in Plan D be protected against future mismanagement by those in control of the company? 22.8. Is Plan E, with all its complexities, worth pursuing? If so, how will the creditor / shareholders in Plan E be protected against future mismanagement by those in control of the three companies? 22.9. Is there a risk in Plan D or Plan E that after some years government will again be blamed for a problem caused by others? Questions and Answers 23. The presentation will include a question and answer session to make sure that all have the opportunity to clarify any aspects that bother them and generally to answer any questions that may arise. SECRET