The only reason German investment company Ferrostaal is alleging fraud against Black Economic Empowerment organisation Atlantis Economic Development Trust is because parliament's questions on the company's contribution to the arms deal offset programme have caused embarrassment.

So reads an opposing affidavit before the Cape High Court by one of the trustees, Jerome Levendal.

He says the questions have caused Ferrostaal "extreme embarrassment" amid the sensitivity surrounding government's arms procurement programme.

Trade and Industry Minister Alec Erwin was questioned on Ferrostaal's contributions in June - how much Ferrostaal had given the trust; what projects the money had been used for; the status of the projects and whether an audit had been done on how the money was spent.

Levendal, former ANC chairman MP Danny Olifant, Quinton Pick, Rebecca Davids and Selwyn Hockey are trustees of the non-governmental organisation.

Ferrostaal is applying to have the trust provisionally wound up because of the alleged fraud, including the misappropriation of R2 million.

In terms of a 2003 loan agreement, Ferrostaal advanced R25m for the upliftment of the Atlantis community. Ferrostaal now wants the money, with interest, to be paid back but the trust says it is unable to do so.

Levendal says the company's managing director, Alexandra Dorstewitz, "explicitly told the trustees they would not insist upon repayment of the loan".

"She said that after two years of non repayment, Ferrostaal would write off the loan.

The trust has accordingly, for the past three years, proceeded on the basis that the loan is non-repayable," said Levendal.

"Ferrostaal, until July this year, has done nothing to disabuse the trust of this belief."

He said Ferrostaal had control over all sums paid in terms of the agreement and had paid third parties only after it was given invoices detailing the goods or services being provided.

Olifant, who is also one of the accused in the parliamentary travel scam trial, resigned as chairman of the trust last month. He told trust CEO Wilfred Williams at the time that he feared Ferrostaal would criminally prosecute him.

In his affidavit, Williams said the trust had poor record-keeping and there were instances of wrongdoing on the part of certain trustees.

Levendal denies this, saying the trust's books were properly kept and up-to-date. He welcomed an audit but "a prerequisite for such an audit would be the return by Williams of those books and records which he has taken without permission".

He also questioned why Williams had given no explanation as to how he had come to depose an affidavit on behalf of a hostile party.

"He never approached any of the other trustees for an explanation for his concerns. Given the timing it is my belief Ferrostaal placed pressure on Williams to depose the affidavit. Manifestly, he also has a personal axe to grind," said Levendal.

He said Olifant denied concerns that he would be criminally prosecuted and that it was unnecessary for Ferrostaal to cite the trustees in the application.

"This was done solely to to cause them embarrassment," he said.

The matter will be heard on November 2.

With acknowledgement to Lenore Oliver and Cape Argus.