20090812 Liquidator Second Circular

EDWAFIN INVESTMENT HOLDINGS LIMITED (IN LIQUIDATION) SECOND CIRCULAR TO ALL DEBENTURE HOLDERS AND CREDITORS DATED 12 AUGUST 2009 Many of the creditors and investors would have visited our website www.edwafinliquidation.co.za. You will note that we have outlined the procedures relating to liquidations in general, in the section “Liquidation Procedure and Timeline”. Accordingly, we advise that on 02 July 2009 we reached the “Final Date of Liquidation” stage, as the Final Order of Liquidation was granted on this date. The next step in the administration is the First Meeting of Creditors which is convened by the Master of the High Court. We are expecting to be notified of the date shortly. The agenda for this first meeting is inter alia the submission and proof of claims, interrogating directors and other relevant parties. We recommend that creditors and debenture holders do not at this stage lodge claims for proof. There will be other opportunities to do so, should it ultimately be required. With regards to the interrogation, the Joint Liquidators have decided to convene a specific meeting. The interrogation will take place once a date is allocated by the Master of the High Court, alternatively the High Court. In general, we are able to report progress on the following: 1. EDWAFIN INVESTMENT HOLDINGS LIMITED: Other than the shares it owns in its subsidiaries, Edwafin had moveable assets which were sold by public auction on 27 July 2009, which sale realised an amount slightly in excess of R380 000.00. At this stage that is all we can realistically expect to recover in the short term. Unfortunately this relatively small amount only just allows us to tie up administration issues such as tax certificates for investors and IRP5’s for employees. 2. DYNAMIC MOTOR COMPANY (PTY) LTD: The liquidation of DMC proceeded according to plan and was provisionally wound up on 17 June 2009. Mr Glen Usher of Glen Usher Attorneys was appointed Joint Provisional Liquidator with P M Voller and C M Nkomo. The assets of this Company are to be sold by public auction on the 30th of June 2009. We do not expect to make a large recovery from the sale of these assets belonging to DMC. 3. RAINBOW PAINTS AND ADHESIVES (PTY) LTD: The Joint Provisional Liquidators decided to liquidate the subsidiary as we are unhappy with the transaction when the business of this entity was sold. We believe the creditors of Edwafin stand to gain if these transactions are cancelled and the business resold. The quantum of the recovery in this matter is still very much in question. We believe there is some value to creditors and will pursue it vigorously. The Company was provisionally liquidated on the 22nd of July 2009 and messrs. N Button, XMB Zondo and P Singh were appointed Joint Provisional Liquidators. 4. ALEXIA INVESTMENTS (PTY) LTD : Edwafin owns 100% of the shares of Alexia. Prior to liquidation it sold its shares for R2 Million, of which amount R1,2 Million was to be paid to the bondholder, FNB. Part of the balance of the purchase price was paid to a subsidiary company. The contract was not yet complete at the date of liquidation (i.e. it was still executory in nature). The Liquidators must make an election whether to abide by or resile from the contract. It is our recommendation that creditors instruct us to resile from the contract and sell the property out of the Company.

5. FORENSIC AUDIT: Unfortunately, as previously advised, the sale of the moveable assets of Edwafin

Investment Holdings is unlikely to provide the resources to conduct a full and thorough investigation by the liquidators. As mentioned in the First Circular, we strongly believe that it is necessary for a forensic audit. We have discussed this with the Commercial Crime Unit of the SAPS and the investigating officer has indicated that he would do his utmost to motivate that the State conduct a forensic audit as part of their investigation. If the State agrees to do this, it will be of immense value to us as liquidators and we are very hopeful that it will lead to further recoveries for the benefit of creditors. A final decision is awaited from the CCU of the SAPS. If this does not materialise the only other option is to approach creditors to each pay in a pre-designated amount to create a fund for purposes of conducting further investigations. We have not finalised the exact mechanics involved in doing this as yet and will revert to creditors and debenture holders shortly, setting out the process. 6. FRAUD POLICY The Company concluded an insurance policy with Hollard Insurance Company pre-liquidation, protecting the Company against fraud and theft by its employees. The annual policy ran from 01/08/2008 to 31/07/2009. On the Liquidators notifying the insurers of the potential claim, the Liquidators gained the impression that the Insurers would defend any claim. The Liquidators will use the interrogation process to establish the fraud. 7. GENERAL MEETING To enable creditors to ask questions and to determine the way forward especially in regard to the Enquiry and Forensic Audit and the funding thereof, meetings will be held in Kwazulu-Natal and the Western Cape to debate these issues and get directions from creditors (investors / debenture holders). It is recommended that you attend the meeting, alternatively send a representative, as the decisions to be taken at the meeting will determine the destiny of this liquidation process and especially the potential recovery on the Fraud Policy referred to above and from the Directors. The time, date and place of this meeting will be circulated shortly. In conclusion, it is prudent to advise that it remains unlikely that investors and creditors will make any recovery. We cannot speculate on what may or may not be recovered as a result of our investigations, however as stated herein, we are hopeful. It is vital that a forensic audit and enquiry be held, because without these processes, we simply will not be able to properly determine the affairs of the company in liquidation and its subsidiaries. Our next circular to creditors and debenture holders will incorporate our Second Meeting report, and provide more details of the General Meeting.