Dispute between founders and board leaves Capiter in arrears to employees and creditors • TechCrunch
Last month, the Egyptian B2B e-commerce platform Kapiter Newspaper headlines After the dismissal of the founders Mahmoud Noah and Ahmed Noah by the Board of Directors as CEO and COO. The reasons were unclear, as the parties did not comment publicly on the situation; However, from various local news outlets, it ranged from mismanagement of funds and failure to inform the board of directors and working on a possible merger, as well as internal disagreements over management methods.
In a statement issued to TechCrunch last month, Capiter’s board said allegations of theft of the company’s assets by the founders were untrue and did not act to remove the founders due to suspected theft or fraud. Instead, this course of action was taken after the founders abdicated their responsibilities, failed to enforce the company’s board-approved procedures, and began actively subverting the company’s capabilities to stabilize its financial and operational affairs. After this juncture, it became necessary to appoint an interim CEO (the company’s chief financial officer, Majed Al-Ghazouli) to manage the company’s operational and financial affairs.”
When the news broke, fired CEO Mahmoud Noah denied the allegations when TechCrunch reached out and said that he and his brother Ahmed had not received official notice of their dismissal. But in an unexpected twist, the founders, in a statement to TechCrunch, accused the board of making “false and untrue allegations” questioning their reputation. Last week, Noah moved to LinkedIn to row his account The whole drama.
Meanwhile, the statements from Capiter’s board of directors and founders involve a lot of finger pointing, leaving Capiter employees even more confused than they currently are about their current situation. Many of these employees, ignorant of the company’s guidance, have yet to receive their August salaries and severance benefits. some have They expressed their dissatisfaction On LinkedIn (you can find other posts over here And the over here).
While about 50% of August’s salaries were paid, a few employees who spoke with TechCrunch on the condition of anonymity said the board had yet to announce any timetable or dates for salaries due, leaving them stuck. “The board told us that they are following legal procedures to finish everything that is going on before they pay us. Also, suppliers and creditors are calling each other to ask for their money, which should be the company’s responsibility, not ours,” one said, adding that many of them did not move into new opportunities. Because they haven’t officially moved yet. They were released from their duties in Kapitre.
Founders vs. Investors
Last September, Capitre $33 million raised in Series A funding to compete in the country’s growing e-commerce business and retail space. It was one of the biggest at that point, and things seemed to be going well with the company until it laid off several employees between June and July, citing global macroeconomic trends. But various sources say the company’s problems were more internal than external, describing Kapiter as a workplace with poor management, no structure, and a company with a high burn rate.
The company had planned to raise a follow-up round to address its plight but faced a challenging fundraising environment. What followed led to the current rift between founders and investors.
According to the sources, Capiter investors wanted to sell the company to Retailio, a similar company based in Saudi Arabia, but the founders refused; They wanted existing investors to inject more capital into Capiter. A source close to the company confirmed this to TechCrunch. The source said, “It is true that in the past nine months, the company has received internal interest from several players in Egypt and neighboring countries due to the impressive business that Kapiter has built.” “During the same period, investors have injected millions of dollars of capital into two tranches (in addition to Series A raised last year) based on the progress of these conversations and the attractiveness of the business. Although the events of the past two weeks have disrupted these efforts, there are still discussions Active mergers and acquisitions are currently underway.”
The board claims that the founders of Capiter left Egypt during these discussions around 1 September. In doing so, they ceased to resolve the operational and financial position of the company. They also argued that the founders prevented key employees from accessing email and restricted viewing and access to important bank accounts. “These actions undermined efforts to stabilize the company, most notably its ability to negotiate with creditors, pay employees, and achieve potential merger,” the board of directors expressed in its statement.
The board said it funded Capiter with enough capital to pay August salaries and directed the founders to make those payments. They claimed that the founders unilaterally and without consent redirected most of the capital to low priority creditors and now blocked bank accounts. According to the Board of Directors, any obligations related to the salaries owed and employment benefits rest with the brothers Noah and Kapiter Misr, where the Board of Directors consists of the founders only.
Yes, you read that right: Major investors, including Quona Capital and MSA Capital, say they hold board seats at Capiter Technologies Holding Ltd. The holding company initially based in Mauritius and now in Abu Dhabi. In contrast, Capitre Egypt has only two members on the board of directors: the Noah brothers. Thus, all liabilities currently under investigation fall entirely to Capiter Egypt, as Capiter Technologies Holding Ltd does not own. No administrative rights or signature powers.
Now, here’s where it gets interesting. On September 5, the Capiter Board of Directors appointed a new management, with El-Ghazouli as interim CEO. The Noah brothers said in their statement that the board of directors did not initiate any formal procedures or formalities to dismiss them and to cross out their names from the official records of Kapiter “to the best of their knowledge.” In response, the Board claims that as the founders are the sole directors, signatories and legal representatives of Capiter Egypt, any efforts to bring about a change of control must follow legal process and may take up to 60 days, as directed by the Egyptian Legal Counsel. . The board said the legal procedural challenges outlined above have slowed down the legal process to formally complete this process.
With Capiter’s management hanging in the balance, neither the company’s board of directors nor its founders take full responsibility for salaries owed to employees and money owed to creditors, which according to people familiar with the matter, ranges between $3 million and $5 million. Although the board’s argument over jurisdiction seems reasonable, it easily absolves them of responsibilities. So it is not clear if this is true. In addition, it does not help that the Noah brothers claim that they cannot perform their administrative duties, including paying employees’ salaries and settling payments to creditors, because the board of directors expelled them from their positions.
The founders of Capiter also noted that in the month prior to these events, they asked the board of directors to approve the company’s immediate liquidation as the appropriate legal way to protect the company’s employees and creditors—as well as a written commitment to pay the company’s obligations to its employees. and creditors in the event of future liquidation if the shareholders wish to continue the business of the company in the hope of a possible merger and acquisition transaction.
“Instead of acting responsibly, they stalled and did not agree on our solutions, ignoring the rights of the company’s employees and creditors, and leaving them without their salaries in the current crisis,” the founders said. “The new administration did not disburse the remaining salaries and did not negotiate the restructuring of payments to creditors’ obligations.”
The Noah brothers argue that the proper shutdown of the Capiter was a fundamental right that the board of directors had not granted them and that their unlawful dismissal was a means the board used to cover up their liability for debts owed to creditors and employees. As a result, Noah, in his LinkedIn post, threatened to involve the limited partners of Capiter shareholders in the matter.
We call on Shareholder Support Partners to open an internal investigation to enable founders to share their evidence with LPs, and to help influence shareholders to cover payments of the company’s obligations and debts (which shareholders have signed their consent to) creditors and employees, in order to promote responsible behavior toward the ecosystem. The founders believe that the boards’ actions are meant to cover up the underlying issue, which is that the company still owes its creditors. This situation has been very detrimental to the company, its founders, its creditors, and the entire ecosystem.
Meanwhile, after stating that any obligations regarding outstanding salaries and employment benefits rest with brothers Noah and Capitir Misr, the board said that although its shareholders are not financially or legally obligated to ensure that August salaries are paid, they will put in “some ‘effort’.” towards the endeavor.
The board said in a statement: “The board of directors is working to find a legally and operationally viable way to pay the remainder of the August salaries, as quickly as possible, in a manner that does not undermine the financial and legal restructuring process and does not corrupt Egyptian law.” Staff will be apprised of the timing and methodology of this disbursement as soon as it is confirmed. As we understand the financial burden of this situation, the Board of Directors is also making every effort to support employees in finding new roles and job opportunities and they will spare no effort in making this happen.”
This is an advanced story…