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Tuesday, 11 October 2022

Capiter’s co-founders take legal action against board over their dismissal

Capiter meltdown could end up in court: The two co-founders of B2B e-commerce startup Capiter have filed a lawsuit with the public prosecutor’s office against the company’s board of directors over their recent firing, co-founder Mahmoud Nouh told Bloomberg Asharq (watch, runtime: 8:19). The pair were dismissed by the board in September amid accusations of financial impropriety at the crisis-stricken firm.

A recap for nonresidents of Planet Startup: The Nouh brothers were dismissed last month by the company’s board, which in a statement said they had failed to attend board meetings or to fulfill their fiduciary duties. The firing came amid a storm of allegations on social media accusing the two brothers of financial impropriety at the high-profile company, which last year raised USD 33 mn from regional and global investors.

The Nouhs’ case: In their complaint to prosecutors, the Nouhs argue that their dismissal was illegal as they never received formal notification of it from the board, which they allege deliberately and unlawfully sought to isolate them from the business, Mahmoud told the broadcaster. They refute the board’s claim that they stopped showing up to board meetings, saying they attended three separate meetings in the week leading up to their dismissal. The pair are seeking compensation for damages, Nouh said.

The brothers wanted to liquidate Capiter when it became clear that the startup would no longer be able to fulfill its obligations, including those to employees — but the board refused, Mahmoud claims, blaming global economic trouble spurred by the war in Ukraine for the company’s downfall. He declined to say how much Capiter owes, but said it was the board that had failed to fulfill its financial obligations after dismissing him and his brother, noting that employees still haven’t received their August salaries.

The Nouhs want to know who fired up the rumor mill: The lawsuit also demands an investigation into the source of social media allegations that the brothers had embezzled funds from the company. “Tens and thousands of companies fold, but it doesn’t need to be due to a problem or a scandal … the complaint will investigate who is behind this fake news” on social media, Nouh said.

The brothers want board members to go on the record about what happened: “The investigation will reach the heads of the funds [who invested in Capiter] in efforts to get to the bottom of what happened and find out who is responsible for the company going to ruin,” he said. Quona Capital and MSA Capital led the USD 33 mn series ‘A’, with participation from Savola, Shorooq Partners, Foundation Ventures, Accion Venture Lab, and Derayah Ventures.

Mahmoud sought to dispel the idea that the co-founders “fled” the country: Capiter has a branch in the UAE and there are no restrictions on which country company execs can work from, Mahmoud said, adding that he often worked from abroad before the scandal broke and has a visa to stay in the Emirates. The brothers had received threats in Egypt thanks to the social media storm, he claimed.

Nouh also claimed that Capiter’s HQ has been looted since their dismissal, alleging that assets including money and company documents have been stolen.

What’s next? The Nouhs say they’re still calling for liquidation so the company can pay some of the money it owes, especially to employees. Meanwhile, Capiter’s board is discussing its response to the allegations, Al Sharq quotes interim CEO (and former CFO) Majid El Ghazouli as saying. The board said last month that internal and external investigations had been launched into the scandal, but Mahmoud told Asharq he and his brother have received no official notification of any ongoing investigations.

There have been reports that Capiter could get hoovered up: Saudi fintech platform Sanad Cash reportedly wants to acquire 60% of the startup, offering to clear out Capiter’s debt in return for the shares. Key investor Quona Capital could also be in the frame to buy 70-80% of Capiter’s shares.

About Capiter: Capiter caters to micro and small businesses in the food and beverage, FMCG and consumer electronics segments. It has a multi-headed business model: You can think of it as a marketplace in which businesses can order inventory, arrange delivery, and access buy-now-pay-later (BNPL) financing facilities through one app.

Want more? We dive deeper into what all this means for the local startup scene in our What’s Next vertical, here and here.

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