Hotel industry shaken by liquidation

Directors of Signature Life Hospitality have hit back, saying they will take legal action against the "scandalous, vexatious and defamatory allegations". However, owners of some of the 16 hotels that used to be managed by Signature Life are confident that a liquidation inquiry will reveal what has happened to millions of rand they say is owed to them.

This is happening at a time when hotels in Durban have enjoyed a bumper first half of the year, with increased tourism numbers and hotels fully booked around a number of big events that have taken place in the city. The mainly trendy boutique hotels connected to Signature Life say they will continue to do business by internalising operations, though it is claimed that at least one hotel has been forced into bankruptcy.

The drama has been played out over the past three months through court applications and legal action. On Friday, 13 July 2012 Durban high court judge Phillip Nkosi made an interim order against Signature Life, placing it into liquidation. But that's unlikely to be the end of the matter.

"We are engaging with our attorneys and counsel as to, among other things, institute an action for damages to the good name [and] reputation of the directors and other affected parties," the Signature Life directors say in a joint statement issued through Gavin Price Attorneys. They would not speak directly to the FM, claiming that the matter was sensitive and sub judice. "The truth will out in due course," the statement says.

The truth is what a lot of hotel owners want as well. The main directors of Signature Life, Alan Vels, Glyn Taylor and Donald Pitt, are well known in the hospitality industry. They used to be with hotel management group Three Cities Hospitality before forming Signature Life a few years ago. They say in the statement that the company was placed into creditors' voluntary liquidation on June 28 due to "escalated cash-flow constraints and in order to protect creditors".

However, James Murray, manager of the company that owns The Docklands Hotel in Durban and the applicant in the Durban high court hearing, says the directors of Signature Life quietly placed the company into voluntary liquidation following his attempt to place Signature Life into liquidation in May.

At the centre of the dispute is the allegedly misappropriated money hotels claim Signature Life owes to them. The business model was for Signature Life to manage and market the hotels for a fee. Income generated by the hotels was meant to be paid back by Signature Life to the hotels, but it allegedly seldom was.

"A thorough and immediate investigation is warranted. We want to know where the money has gone," says Murray. He claims Signature Life owes him more than R2m.

One allegation is that while Signature Life was meant to conduct separate bank accounts in the names of the hotels it managed, money was instead diverted into its own bank account. It then refused to transfer the money back.

"Consistent with the structure of a pyramid scheme, Signature Life increased the number of its victims by contracting with further hotels, and at one stage it had contracted with up to 36. In this way, it managed to secure fresh sources of income," Murray claims.

In its statement Signature Life disputes Docklands Hotel's allegations that there was a pyramid scheme "or anything akin to that".

The matter returns to the Durban high court on August 16, where the interim liquidation order may be made final. But Signature Life will probably oppose this. A long fight could lie ahead for the hotels that say they are owed money.

Source: Financial Mail