Rescue plan for Elgin

File photo: Reuters

File photo: Reuters

Published Mar 17, 2015

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Durban - Durban engineering giant Elgin has been put into business rescue after notching up debts of R244 million which, because of “poor cash management” and breach of contracts, it cannot pay.

But the Industrial Development Corporation (IDC), which launched the business rescue application in the Durban High Court last week, says the business is still viable and can trade its way out of trouble.

The Elgin application came a day after another KwaZulu-Natal company, JSE-listed paint specialist Chemspec, was also placed in the hands of a business rescue practitioner.

In a press release, Chemspec said it had been negotiating with investors for new capital, but these negotiations had failed.

The directors had decided, voluntarily, to pursue business rescue “to optimise the likelihood of Chemspec continuing to exist as a going concern”.

The JSE had suspended trading in ordinary and preference shares with immediate effect.

The company suffered a reputational crisis in 2010 when its former chairman, Strath Wood, resigned suddenly and left South Africa after a court ruled that he had lied and fabricated evidence in a case in which he was being sued for R3m.

It has been alleged that he left a trail of debt, and sequestration proceedings against him are ongoing.

The Mercury tried to get comment from the Chemspec board on Monday but was referred to the business rescue practitioner, Pierre Berrange, who did not respond to questions.

Elgin – which was bought from Murray & Roberts by brothers Ian and Lee Donjeany in 2004 and employs 400 people – has been experiencing financial problems for some time.

The Mercury reported last year that KPMG had obtained a summary judgment order against it for three unpaid bills of about R1m.

In December this year, the Southern African Enterprise Development, which was owed about R9.4m, initiated liquidation proceedings in the Durban High Court against the company – which were opposed and have now been stopped by the business rescue.

In his affidavit in the application that came before Judge Anton van Zyl last week and that was finalised yesterday, IDC legal manager Marcus Senyatsi said the rescue would result in better returns for creditors than liquidation.

He said the company had a current order book of R82.8m and assets of almost R279m. “It is in this situation because of poor cash management and an inability to execute its orders on time,” he said.

One of those was a contract with Sunrise Energy to manufacture and supply liquid petroleum storage vessels known as “bullets”.

Guarantees

Hollard Insurance provided performance guarantees.

Senyatsi said Elgin did not provide the “bullets” and Sunrise Energy was demanding almost R57m. Hollard would pay R34m of this through the guarantee, which Elgin would have to repay.

Sunrise would also sue Elgin for the balance, he said.

“This claim and ours was the catalyst to put the company over the edge. It could be the death knell,” he said.

But, he said, last year the company had a turnover of R300m and “with proper cash management” it should be able to keep operating, albeit without being able to immediately pay what it owed to Hollard and Sunrise.

“Elgin has concluded a revolving credit agreement with the IDC, and we will consider similar types of funding once the Business Rescue Practitioner has investigated its affairs. There is also an offer to purchase a portion of the business for R125m.”

He said the practitioner would be able to investigate other means of funding so that the company could operate and start to pay its debts. “Even if it can’t be saved, there will be a greater return to creditors this way than through the liquidation,” he said.

The judge granted a provisional order with a return date of early April.

The Mercury

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