Minister Pravin Gordhan is reported to have requested time to allow the government and the board of Denel to devise a plan to repay the loan. Picture: Siphephile Sibanyoni/African News Agency (ANA)
Minister Pravin Gordhan is reported to have requested time to allow the government and the board of Denel to devise a plan to repay the loan. Picture: Siphephile Sibanyoni/African News Agency (ANA)
The writer says Gordhan put Denel directors under the bus. Photo: Supplied/Denel
The writer says Gordhan put Denel directors under the bus. Photo: Supplied/Denel

JOHANNESBURG – Minister Pravin Gordhan is reported to have begged the indulgence of the City of Joburg to cut some slack for state arms manufacturer and aviation company Denel, whose deadline to repay a R290 million loan to the city’s sinking funds was two months ago. 

Gordhan is reported to have requested time to allow the government and the board of Denel to devise a plan to repay the loan.

Whereas Gordhan’s conduct is to be expected from a diligent shareholder, the concessions made in his correspondence with the city have put the directors under the proverbial bus, taking into account that the entity is a company incorporated and governed in terms of the Companies Act.

The request for time, from a Companies Act perspective, is an admission to several cardinal sins by directors, including the following:

l In terms of section 22 of the Companies Act, the directors of any company are prohibited from trading and conducting the affairs of a company recklessly or in a manner that may prejudice the creditors.

l Section 129(7) of the act requires the board of a company, if there are reasonable grounds to believe that the company is financially distressed but the board decides not to adopt a resolution for business rescue for any reason (including a promise by a shareholding minister to provide financial support), to deliver a written notice to each affected person as defined in the Companies Act, providing reasons why the board has not commenced business-rescue proceedings, notwithstanding that the company is financially distressed.

The writer says Gordhan put Denel directors under the bus. Photo: Supplied/Denel
The writer says Gordhan put Denel directors under the bus. Photo: Supplied/Denel


l Section 77(3)(b) holds directors personally liable for any loss, damages or costs sustained as a result of the company trading recklessly as defined in section 22.

l Acting in a grossly negligent manner is a grounds for declaring a director delinquent and barred. 

l Directors' liability insurance does not cover these conducts as they are clearly prohibited by statutes and the general body of company law.

The minister of public enterprises and other ministers who act as shareholders’ representatives in government entities that are incorporated as companies may do well to invoke the provisions of section 9(2) of the Companies Act, which provides that a shareholding minister of a state-owned company may request the minister of trade and industry, who is the custodian and master regulator of companies, to exempt state-owned companies partially or conditionally from one or more provisions of the act. This provision may prove to be the magic potion that the directors of state-owned companies require.

It is no exaggeration to say that most South African state-owned companies are financially distressed from a Companies Act perspective, are trading recklessly and in some instances are trading under insolvent circumstances.

What appears on the face of it to be an insignificant section of the Companies Act that is ensconced in the interpretation section of the Companies Act, which some company law experts and corporate governance practitioners may have missed, seems to be the solution. 

This seems to be the best way out for the professionals who have committed to this country service as directors of our state-owned companies.

Matodzi Ratshimbilani is a director at Tshisevhe Gwina Ratshimbilani.