Post Office now the fourth SOE in business rescue

The South African Post Office has become the fourth state-owned entity to be placed in business rescue after it was placed in provisional liquidation earlier this year because it failed to pay its creditors.

The business rescue starts immediately according to an order of the High Court in Pretoria. Communications Minister Mondli Gungubele brought an urgent application on 30 May to place the Post Office in business rescue.

According to Werksmans Attorneys, business rescue is used to facilitate the rehabilitation of a financially distressed company by providing for a business recue practitioner to temporarily supervise the company and the management of its affairs, business and property.

When a company is in business rescue, it is temporarily protected from claims from creditors. The business rescue practitioner develops a business rescue plan to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity in such a way that it increases the likelihood of the company continuing on a solvent basis or results in a better return for the creditors than would have been the case in a liquidation.

Liquidators accept business rescue decision

The joint provisional liquidators, Anton Shaban and Gerry Musi, accepted the business rescue and abandoned the provisional liquidation, although they believed that business rescue was not an option as the embattled state-owned entity has been insolvent for some time, with a recently reported debt of some R9.4 billion.

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They did not believe that the R2.4 billion allocated in the Budget in February would be enough for the Post Office to pay its debts and their counsel also stated that the Post Office’s affairs are in such disarray that the auditor general has been unable to complete her audit for the 2022 financial year and delivered a report that is replete with concerns, criticisms and qualifications.

“Any portrayal of the Post Office’s financial status at present is a matter of some guesswork,” Judge Elmarie van der Schyff said in her judgment.

She allowed the Municipal Employees Pension Fund as the second applicant. The fund, one of the Post Office’s largest creditors, supported the minister in the business rescue application and there was no opposition to the intervention application.

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However, Van der Schyff said, the absence of any opposition to the fund’s application compelled her to consider if all affected and interested parties were informed of the proceedings, particularly Postbank, “a large creditor whose continued existence seems to be intricately intertwined with the Post Office’s fate”, as well as the employees and relevant trade unions.

She said she was satisfied that Postbank and other affected and interested parties were suitably notified of the application and that their absence is the consequence of a deliberate decision not to participate in the proceedings.

Government’s unwavering stance

Van der Schyff did find it somewhat disturbing initially that government had the unwavering stance in the minister’s affidavits, that it will only provide capital if the Post Office is placed in business rescue.

“While emphasising the dire effect that final liquidation will have on the nation’s international responsibilities and the role that the Post Office plays in the country’s socio-economic structure, it seems as if government wants to force the court’s decision and the outcome of this application by bluntly stating that the R2.4 billion that has already been earmarked to fund the Post Office’s turnaround, will now only be available for business rescue proceedings,” she said.

The minister’s council pointed out that three interrelated structural problems caused the Post Office’s dire financial situation. The problems are that the Post Office has been slow to modernise its service offering, that it did not reduce its operating costs or align them with the requirement of a modern post office and that it has not been competitive in the courier and parcel market.

One of the few things the minister and the provisional liquidators agree on is that the Post Office’s final liquidation is undesirable.

“The role that the Post Office fulfils not only in the national but also international context, is, in my view, the factor that lends credibility to cabinet’s reported undertaking to support the Post Office’s application for an additional R3.8 billion in the October budget if business rescue proceedings commence,” Van der Schyff said.

Anooshkumar Rooplal and Juanito Martin Damons were appointed as joint interim business rescue practitioners.