Dubai: Arif Naqvi, founder of the embattled Abraaj Group, is under investigation in the UAE for issuing bad cheques, adding to the private equity firm’s woes as it seeks a court-supervised liquidation in the Cayman Islands as well as the sale of its funds.
According to sources, the bounced cheque was used as partial security for approximately $300 million (Dh1.1 billion) in loans from Hamid Jafar, founder of the Sharjah-based Crescent Group, to Abraaj and Naqvi.
In the UAE, bouncing a cheque is a criminal offence and Naqvi faces arrest. Currently he is out of the country.
A Sharjah court on this Thursday is expected to determine whether to bring charges against Naqvi and a colleague, Mohammad Rafique Lakhani.
In a statement, Abraaj, which is fighting allegations of commingling funds, confirmed the ongoing legal proceedings against Naqvi in absentia.
“Abraaj can confirm that a loan was granted and security provided in a pure commercial transaction,” Abraaj said in an emailed statement. “Partial repayment of the loan has been made and settlement discussions are ongoing with the intent to arrive at a satisfactory solution for all parties.”
Naqvi is being represented by Dr Habib Al Mulla, executive chairman at Baker McKenzie Habib Al Mulla, who argues that the cheques were provided as security for the loans.
“We were in negotiations with the parties on settling the case. The cheque bounce case has come as a surprise to us. The presenting of the cheques and subsequent criminal charges are seen as a pressure tactic,” said Dr Al Mulla.
The presenting of the cheques for payment and the subsequent criminal charges are seen as a pressure tactic.
“It should be noted that the cheques were provided as part of a security package and as such should not have been submitted to a criminal court,” the company said in an emailed statement.
Earlier this month, the Al Jafar family handed over their debt claims against Abraaj to the Auctus Fund, a little-known Saint Vincent-based fund that filed a petition against Abraaj in the Cayman Islands seeking the liquidation of the private equity firm in a move that would enable them to recover their loans.
Sources close to the case said Auctus’ claims — which include the claims of the Al Jaffar family — are now covered under the liquidation and should “stand still” until the liquidation process is completed. “To Abraaj’s knowledge, Auctus is now the assignee of the said loan. In the view of our legal counsel, this raises questions of unjust enrichment and the overall basis and merits of the lawsuit,” Abraaj said.
With an estimated $13 billion plus assets under management, the company is facing a raft of legal challenges from investors and creditors.
The Grand Court of the Cayman Islands last week appointed PwC as provisional liquidator of Abraaj Holdings and Deloitte as provisional liquidators of Abraaj Investment Management Ltd.
Investors — including the Bill & Melinda Gates Foundation — had commissioned an audit to investigate the alleged mismanagement of money in Abraaj’s $1 billion (Dh3.67 billion) health care fund. The group has denied any misuse of funds.
The Abraaj Group last week announced that it had reached an agreement with New York-listed Colony Capital Inc for the sale of Abraaj’s Latin America, sub-Saharan Africa, North Africa and Turkey fund management business and the group’s limited partnership (LP) interests in the underlying funds.
This, together with the liquidation process and the likely sale of other investments, was widely expected to help Abraaj settle its obligations to both investors and creditors.
However, analysts now fear that the bad cheque charges and more legal troubles that are expected could jeopardise an early settlement — through liquidation and the sale of assets — of the claims of lenders and investors.
“Criminal charges and potential arrest of Naqvi will not serve the interest of any of the stakeholders. While the cheque bouncing is a criminal case in the UAE, it is a civil dispute in most other jurisdictions. However, based on the arrest warrant issued he can be arrested in the UAE. But we will present the case in the court on Thursday when it comes up for hearing,” said Dr Al Mulla.
Meanwhile Abraaj alleges that these cases are deliberate attempts to scuttle the restructuring.
“Abraaj is surprised by the excessive media interest which comes at a sensitive moment in its restructuring efforts and sale of the group’s regional fund business to Colony Capital. We believe deliberate efforts are being taken to destabilise the positive developments that the group and its Joint Provisional Liquidators have been working very hard to secure,” the company said in a statement.
