Cash Paymaster Services (CPS) – the company hired by the SA Social Security Agency (Sassa) to pay social grants – has agreed to go into liquidation after Sassa refused to back down over debt the company owes the agency.

This debt includes profits made by CPS during the contracts, which the Constitutional Court has ruled must be paid back, reports GroundUp.

CPS – a subsidiary of Net1 which is listed on the JSE and on the Nasdaq in the US – was contracted to pay social grants by Sassa in 2012 and the contract was extended twice, ending in September 2018 when the Post Office took over grant payments.

This left CPS ‘financially distressed’, said Net1 CEO Herman Kotze in a business rescue application to the Gauteng High Court (Johannesburg) on 26 March. CPS was subsequently placed in business rescue in May.

Kotze said in court papers then that CPS’ current assets amounted to about R15m but the company owed Sassa – its main creditor – about R316m plus interest.

He argued that a business rescue plan, as opposed to liquidation, was the best outcome for creditors because CPS had a pending claim for about R338m (plus interest) against Sassa.

This relied on ‘diligent and efficient’ litigation, said Kotze, and this could ‘significantly reduce, or set off entirely’ CPS’ liability to Sassa.

In its application filed in the Gauteng High Court (Pretoria) on 10 September, Sassa argued that there was no reasonable prospect of CPS’ claim against Sassa being successful, says the GroundUp report.

‘Sassa contends that the liabilities of (CPS) have been understated by an amount of R252m (at a minimum) and/or by an amount of R850m (at a maximum),’ read Sassa’s court papers referring to a finding by its auditors who verified CPS’ audit report to determine how much profit it made from the social grants contract.

The Constitutional Court has ruled that CPS may not retain profits, and ordered the company to file audited statements of expenses, income and net profit earned under the contract, and Sassa to obtain ‘an independent audited verification’ of the CPS statements and file this with the court.

‘Accepting then, as we must, that CPS will not retain the profit earned from the unlawful contract with Sassa, it follows to say the profit earned is in fact a liability in the books of CPS,’ said Sassa in court papers.

Without the support of its largest creditor, CPS said it was 'reluctantly forced to concede that a successful business rescue plan is not possible’.

The dispute over the amount of profit CPS made is before the Constitutional Court.

Freedom Under Law has asked the court to order CPS’ auditors to hand over all financial records so that Sassa’s auditors can accurately determine the profits made by CPS.

Full GroundUp report