DURING the now beleaguered State of the Nation address, President Jacob Zuma announced that as a priority, in order to stabilise Eskom’s finances the government would honour its commitment to give Eskom around R23 billion in the next fiscal year.
This for now remains cold comfort as there are no details on exactly when and how much will flow into the coffers of Eskom.
And this follows a litany of slip-ups on whether or not Eskom has sufficient funding to keep the lights on. In early January 2015 the press quoted Minister of Public Enterprises Lynne Brown as having confirmed that Eskom was fast running out of money after forking out billions of rand to power up the grid with costly diesel. At the time, it was reported that Eskom had about 21 days before it ran out of money.
The reports of it running out of money were quickly dismissed by Eskom through its financial director and the National Treasury.
Quoted on the sidelines of the World Economic Forum meeting in Davos, Switzerland, it was reported that Minister of Finance Nhlanhla Nene dismissed as irresponsible comments that Eskom would run out of money, adding that neither Eskom nor the Department of Public Enterprises had sought funding from the National Treasury.
The silence from the Eskom board among all this has been deafening.
The public enterprises minister, as a shareholder representative, can get away with making non-committal statements about the true status of Eskom’s financial position. By law, the minister does not run the company and is not expected to have such information other than as provided by the company.
Rescue
The latitude that government representatives have in pronouncing on the financial affairs of Eskom is not available to the finance director of Eskom and her fellow directors within the utility’s board.
Eskom is established in terms of the Eskom Act and incorporated in terms of the Companies Act No 71 of 2008 (“the Companies Act”). The Companies Act is intolerant of this kind of ambivalence by directors regarding the financial position of companies in order to protect the creditors of the company and other stakeholders.
To this end section 129 (7) of the Companies Act requires the directors of a company, if they have reasonable grounds to believe that the company is financially distressed but have elected not to adopt a resolution to commence business rescue proceedings for such company to deliver a written notice to its shareholders, creditors, registered trade unions and employees, explaining the exact financial position, and the reasons why the directors have not put the company under business rescue.
Following up on the provisions of the Companies Act, principle 2.15 of King III implores the board of a company to consider business rescue proceedings or turnaround mechanisms as soon as the company is financially distressed.
In terms of the Companies Act, a company is said to be financially distressed if at a particular time it appears to be reasonably unlikely that the company will pay all its debts as they become due and payable within the immediately ensuing six months.
The directors of Eskom are duty bound by law to take the stakeholders into their confidence and confirm exactly how long and how much is required to keep the company afloat. Given their responsibilities in terms of the Companies Act, the directors of Eskom cannot afford to keep mum about its true financial position.
Failure to comply with the prescripts of the Companies Act on this matter will result in the directors facing the prospects of personal liability from creditors, employees and other stakeholders of Eskom.
Members of the public, to the extent that they can demonstrate any loss or damage suffered as a result of the director’s failure to comply with the act, can institute a class action in terms of section 218 of the Companies Act.
Whereas the public enterprises minister, the president and government representatives in general can afford to coyly remark on the financial status of Eskom, the directors of the company do not enjoy the same luxury.
Matodzi Ratshimbilani is founding director at TGR Attorneys