Business rescue not an option for Post Office

The joint provisional liquidators of the Post Office believe that business rescue is not an option as the embattled state-owned entity has been insolvent for some time, with a recently reported debt of R9.4 billion.

Anton Shaban and Gerry Musi, the joint provisional liquidators, say the Post Office and government also ignored a ruling by the Supreme Court of Appeal to pay the retirement fund deductions from employees’ salaries to the Post Office Retirement Fund, as well as a judgment handed down by the Pretoria High Court to pay the medical aid deductions from employees’ salaries to Medipos Medical Aid.

Instead, the deductions were used for the Post Office’s operational costs.

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The Post Office was placed in provisional liquidation in February 2023 after an application from a landlord whose rent was not paid. According to Shaban, 11 additional creditors sought an order to intervene in the liquidation proceedings.

Shaban says since then it became evident that the Post Office owes numerous landlords unpaid rent and these amounts increase monthly. The liquidators took control of the Post Office on 30 March 2023 and used the past three months to bring themselves up to speed with the complicated affairs and financial position of the Post Office in an effort to keep the business afloat.

Application for business rescue

Minister of Communications and Digital Technologies Mondli Gungubele applied to the Pretoria High Court on 30 May to place the Post Office into business rescue and the application was set down for hearing on 4 July 2023.

However, the liquidators filed a report on 28 June, proposing an alternative to a business rescue as they believe that a formal compromise with creditors under section 155 of the Companies Act would be more suitable in terms of cost and efficiency and would yield a better return for creditors.

The liquidators say it is a better option for the Post Office and its creditors to clear its debts in a compromise to ensure it emerges from provisional liquidation as a solvent going concern. Government can then restructure the operations of the entity as it deems appropriate.

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While the minister expects a dividend to non-employment related creditors of 10c in the rand in a business rescue, the liquidators estimate that in a compromise, a dividend of 12 to 67 cents in the rand may be possible by 30 October 2023.

They say the higher distribution is possible if government honours its statutory guarantee obligation to the Post Office Retirement Fund, leaving a greater share of the R2.4 billion that was committed in the recent budget for distribution among non-employment related creditors. In both cases, employment-related creditors are estimated to receive 100 cents in the rand.

Business rescue based on uncertain events

The liquidators believe the business rescue envisaged by the minister is based on uncertain events, such as amendments to legislation. The Post Office Amendment Bill has not been passed and could still be challenged as it may create a government monopoly.

The second event the minister based his application on is a further unallocated injection of R3.8 billion by Treasury in addition to the allocation of R2.4 billion. The third is the operational restructuring in business rescue that must still happen and will take substantial time, cost and effort.

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The liquidators point out that South African should be worried that the minister has failed to consider the regulatory environment and impact that business rescue will have on the Postbank that is a deposit-taking institution serving the most disenfranchised of citizens.

The Postbank’s ability to conduct business depends on the Financial Service Provider (‘FSP’) licence the Post Office holds and as a result, the Regulator of FSPs had to be cited under the Financial Advisory and Intermediary Services Act in the business rescue application, but was not.

In addition, should the Postbank receive 10 cents in the rand as envisaged in the minister’s application, it will not meet the requirements to obtain a licence as a retail bank, something that is envisaged by the Postbank Bill that was passed by National Assembly on 28 February and the National Council of Provinces on 21 June and which is now awaiting approval by the president in order to be enacted into law, Shaban says.

Urgent need to restructure Post Office

“There is no doubt from both the minister’s application and our affidavit that there is an urgent need for a restructuring of the Post Office. However, we are confident, from our three months of enquiry into the Post Office’s financial and operational affairs, that an expeditious compromise procedure, which could take a few months to complete and at a lower cost than business rescue, would be the best route to restore the Post Office to solvency.”

He says it is up to the creditors and the court on 4 July to determine which mechanism should be used to restructure the Post Office that will ultimately be to the benefit of both creditors and stakeholders.

Meanwhile, Finance Minister Enoch Godongwana said in a written reply to a parliamentary question by DA MP Dianne Kohler Barnard that the 2023/24 budget made no provision for financial support for the provisional liquidation or business rescue of the Post Office.

“Government is responding through the judicial process, but various options are possible including reprioritisation of funds, within the approved fiscal framework,” he wrote.

It sounds as if the Post Office can get another bailout after all.