Last month, Egyptian B2B e-commerce platform Capiter made headlines after founders Mahmoud Nouh and Ahmed Nouh were ousted by its board as CEO and COO. The reasons were unclear, as neither side publicly commented on the situation; however, from various local news outlets, they ranged from mismanagement of funds to failing to report to the board of directors and working out a potential merger, as well as internal disagreements over management methods.
In a statement issued to australiabusinessblog.com last month, the Capiter board said allegations of theft of the company’s assets by founders are untrue and that it has not proceeded to remove the founders on suspicion of theft or fraud. Rather, this course of action was taken after the founders abdicated their responsibilities, failed to implement Board-approved corporate actions and actively undermined the company’s ability to stabilize its financial and operational affairs. After that, it became necessary to appoint an interim CEO (the chief financial officer of the company Majid El Ghazouli) to manage the operational and financial affairs of the company.”
When the news broke, fired CEO Mahmoud Nouh denied the allegations when australiabusinessblog.com contacted him and said he and his brother Ahmed had not received official notice of their resignation. But in an unexpected twist, in a statement to australiabusinessblog.com, the founders accuse the board of spreading “false and untrue allegations” that question their reputation. Last week Nouh went to LinkedIn to describe his account of the whole drama.
Meanwhile, the statements of Capiter’s board and founders have been accompanied by a lot of finger-pointing, leaving Capiter’s employees more confused than they are about their current situation. Many of these workers, clueless about the direction of the company, have yet to receive their August pay and severance pay. some have expressed their displeasure on LinkedIn (you can find other posts here and here).
While about 50% of August’s salaries have been paid, a few employees who spoke to australiabusinessblog.com on condition of anonymity said the board has not yet communicated timeline or dates for outstanding salaries, leaving them stranded. “The board has told us that they are following legal procedures to finalize everything before paying us. Also, suppliers and creditors are calling some of us asking for their money, which should be the company’s responsibility, not ours,” said one of them, adding that many of them have not yet moved on to new opportunities because they have yet to be officially dismissed from their position at Capiter.
Founders vs Investors
Last September, Capiter raised $33 million in Series A funding to compete in the nation’s growing B2B e-commerce and retail space. It was one of the largest of that phase, and the company appeared to be doing well until it laid off several workers between June and July, citing global macroeconomic trends. But several sources say the company’s problems were more internal than external, as they described Capiter as a workplace with poor management, no structure, and a company with a high burn rate.
The company planned to organize a follow-up round to address the issues, but encountered a challenging fundraising environment. What followed next led to the current feud between founders and investors.
According to sources, Capiter’s investors wanted to sell the company to Retailio, a similar player 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 australiabusinessblog.com. “It is true that the company has received inbound interest from multiple players in Egypt and neighboring countries over the past nine months because of the incredible business that Capiter has built,” the person said. “Over that same period, investors have contributed millions of dollars of capital in two tranches (on top of the Series A raised last year) based on the progress of these talks and the company’s traction. While the events of recent weeks have disrupted these efforts, active mergers and acquisitions are currently still underway.”
The board claims that the founders of Capiter left Egypt around September 1 during these talks. With that, they have no longer solved the operational and financial situation of the company. They also argued that the founders were blocking email access for key employees and limiting viewing and transaction capabilities for key bank accounts. “These actions undermined efforts to stabilize the company, especially its ability to negotiate with creditors, pay employees and achieve a potential consolidation,” the board said in its statement.
The board said it funded Capiter with enough capital to pay August’s salaries and instructed the founders to make those payments. They claimed that the founders unilaterally and without approval channeled most of this capital to lower priority creditors and the now blocked bank accounts. According to the board, all obligations for outstanding salaries and benefits rest with the brothers Nouh and Capiter Egypt, where the board consists solely of the two founders.
Yes, you read that right: the major investors, including Quona Capital and MSA Capital, say they have board seats at Capiter Technologies Holding Ltd., the holding company initially based in Mauritius and now Abu Dhabi. Capiter Egypt, on the other hand, has only two board members: the Nouh brothers. Thus, all liabilities currently under investigation rest entirely with Capiter Egypt, where Capiter Technologies Holding Ltd. has no management rights or signatory powers.
Now, this is where it gets interesting. On September 5, Capiter’s board of directors appointed new management, with El Ghazouli as interim CEO. The Nouh brothers said in their statement that the board has not initiated any official procedures or formalities to fire them and remove their names from Capiter’s official records “to the best of their knowledge.” In response, the board claims that since the two founders are the sole managers, signatories and legal representatives of Capiter Egypt, any attempt to bring about a change of control must go through a due process and can take up to 60 days, according to the guidelines from the Egyptian legal adviser. . The board said the legal procedural challenges outlined above have delayed the legality of formally completing this process.
Since Capiter’s management is at stake, neither the company’s board of directors nor the founders bear full responsibility for the salaries owed to employees and money owed to creditors, which those familiar with the case, range between $3 million and $5 million. While the council’s jurisdiction argument seems sensible, it conveniently relieves them of liability. It is therefore unclear whether this is correct. In addition, it doesn’t help that the Nouh brothers claim that they can’t perform leadership duties, including paying employees’ salaries and settling accounts payable, because they’ve been removed from office by the board.
The Capiter founders also noted that in the month prior to these events, they asked the board of directors to immediately approve the liquidation of the company as the proper legal way to protect the company’s employees and creditors — and also commit in writing to pay the company’s obligations to its employees and creditors in the event of future liquidation if the shareholders wish to continue the company’s operations in the hope of a potential M&A deal.
“Instead of acting responsibly, they delayed and disagreed with our solutions, ignoring the rights of the company’s employees and creditors and leaving them unpaid in the current crisis,” the founders said. “The new management has not paid the remaining salaries or negotiated the restructuring of creditors’ debts.”
The Nouh brothers argue that the proper closure of Capiter was a fundamental right that the board did not grant them and that their unlawful dismissal was a means the board used to obscure their responsibility for paying debts to creditors and employees. As a result, Nouh has threatened in his LinkedIn post to involve the limited partners of Capiter’s shareholders in the case.
We are appealing for the support of shareholders to open an internal investigation to allow the founders to share their evidence with the LPs and to help shareholders cover the company’s liabilities and debts (to which the shareholders have signed their approval) to creditors and employees, to promote responsible behavior towards the ecosystem. The founders believe that the actions of the boards are aimed at covering up the root of the problem, which is that the company remains indebted to its creditors. This situation has been very damaging to the company, the founders, the creditors and the entire ecosystem.
Meanwhile, after declaring that all obligations for outstanding salaries and benefits rest with the Nouh brothers and Capiter Egypt, the board of directors said that while shareholders have no financial or legal obligation to ensure that August’s salaries are paid, they “take some effort” toward the pursuit.
“The board is working to find a legally and operationally feasible way to pay the balance of August’s salaries as quickly as possible, without undermining the financial and legal restructuring process or undermining Egyptian law,” the board said in a statement. a statement. “Employees will be informed of the timing and methodology for this payout once confirmed. As we understand the financial burden of this situation, the board is also making efforts to support employees in finding new positions and vacancies and will make every effort to make this happen.”
This is a story in development…