The South African Post Office (SAPO) may have been saved from provisional liquidation and, instead, been put into business rescue, but it is by no means out of the woods.
Should the state-owned enterprise (SOE) have been provisionally liquidated, it would have seen its assets sold in order to pay all its creditors.
Now, however, the aim is to rehabilitate the entity so that it can return to financial health and continue operating.
If this fails, liquidation will be the next step.
A Werksmans Attorneys legal brief written by director Eric Levenstein and candidate attorney Melissa Shaw, states that going under business rescue is becoming an “increasingly attractive option” for South African companies in financial distress. It is favoured because the whole purpose of business rescue is the “effective rescue and recovery” of financially distressed companies.
But this does not mean that SAPO can still not be liquidated. In fact, both the business rescue and liquidation processes can overlap.
“Once business rescue proceedings have commenced, a court may instead order that the company be liquidated, should it be of the view that rehabilitation is unlikely. It is also the obligation of the business rescue practitioner to file for liquidation once it becomes evident that the company cannot be rescued.”
The brief explains that the purpose of liquidation proceedings is to dispose of the assets of the company and pay whatever proceeds might become available to the creditors of the business by means of a legal order of preference.
If the post office is to be liquidated, this is what will happen:
- The creditors will come together and the SAPO estate will be frozen
- No civil proceedings can take place against SAPO while the provisional liquidation process is underway
- Any attachments or execution of judgements are void
- Directors and other SAPO employees can be questioned in an enquiry
- Directors will no longer be in charge of the post office once the provisional liquidation process starts
- All property is placed in the control of the Master of the High Court until a final liquidator is appointed
The purpose of business rescue proceedings, on the other hand, is the rehabilitation of a financially distressed company. Therefore, the post office is now in a position to be rescued and have a plan prepared to allow it to trade out of its financial predicament.
“Business rescue provides the company with a number of methods of protection and brings into effect the temporary supervision of a company and its management, whilst in business rescue.”
This is what will happen now that the business rescue process is underway:
- The post office’s assets will be protected from creditors
- Employees will keep their jobs and be paid. If they are not paid they then become preferential creditors
- Almost any contract that SAPO has entered into can be suspended entirely, partially, or contractually
- Directors can continue carrying out their duties unless prohibited to do so by the business rescue practitioner
- Any guarantees or sureties given by the post office are no longer enforceable
Ultimately, business rescue provides alternatives for financially distressed companies that can result in the company’s debt, management and contracts being restructured and reorganised in a manner that could result in the company continuing to trade on a solvent basis.
“If the business rescue is successful, the benefits would far outweigh the prospect of a liquidation of the company as it would support job preservation and a company which has exited from a period of financial distress and which would continue to contribute to the South African economy,” the Werksmans Attorneys brief explains.
Responding to the court decision to place SAPO in business rescue instead of under provisional liquidation, Acting Minister of Communications and Digital Technologies, Enoch Godongwana, says the SA Post Office will now have "much-needed time’ to restructure its affairs and also implement the turnaround plan that will see it change into a solvent and viable business. He adds that the post office is a strategic government asset that provides vital services throughout the country, especially in remote areas where it is the main link between residents and the outside world.
The SA Post Office is not the first SOE to be placed under business rescue or be liquidated:
- In December 2019, South African Airways (SAA) became the first SOE to commence business rescue after volunteering to do so. In 2021, it exited business rescue as a solvent and liquid enterprise.
- Mango entered into voluntary business rescue in July 2021 and has not flown since. Apart from a few employees retained on short-term contracts, all employees were retrenched. It remains under business rescue.
- Another airline, SA Express, was placed in final liquidation in September 2022. This was after being in provisional liquidation for five months following a failed attempt at business rescue.