Government ‘forces’ Post Office into business rescue

The SA Post Office (SAPO) has been saved from liquidation after an application to the high court by the minister of communications and digital technologies to halt liquidation proceedings and rather put the ailing enterprise into business rescue was granted.

This means taxpayers are likely to be on the hook for billions more.

The court’s take on the matter is telling.

High Court Judge Elmarie van der Schyff says in her ruling: “An aspect I initially found somewhat disturbing is government’s unwavering stance, as communicated through the minister’s affidavits, that it is only willing to provide capital if SAPO is placed in business rescue.

“While emphasising the dire effect that final liquidation will, inter alia, have on the nation’s international responsibilities and the role that SAPO 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 SAPO’s turnaround, will now only be available for business rescue proceedings.”

Control

In addition, the court noted that SAPO is totally reliant on government funding as it is not allowed to raise financing from any other source without government approval.

“SAPO is not empowered to borrow money without the prior written approval of the minister, granted after consultation with the minister of finance, and [is] thus unable to obtain capital from another source.

“The minister did not deem it necessary to engage with the provisional liquidators to discuss the feasibility of [another] compromise proposal.

“The compromise proposal, developed on the assumption that the earmarked R2.4 billion would be available, envisages SAPO exiting provisional liquidation intact. After that, the provisional liquidators submitted, government could pursue an operational restructuring of SAPO, using the additional R3.8 billion, which the government is allegedly willing to invest in SAPO,” according to the judgment.

“This begged the question as to whether it would not be appropriate and in the public interest to postpone the business rescue application and request the minister to purposively engage with the provisional liquidators, and file a supplementary affidavit, where after the application could be finally considered.”

A way to outsource the turnaround …

The judge says submissions by the minister noted the minister’s concern regarding SAPO’s future viability if a financial bailout is to be provided without commitment to an operational restructuring – by independent business rescue practitioners.

“The minister’s counsel emphasised that any solution that solely focuses on a compromise with SAPO’s creditors, without addressing SAPO’s ability to increase its service offering and decrease costs, is not viable as it does not resolve the structural problems SAPO faces,” according to Van der Schyff’s ruling.

“Since the minister confirmed that a compromise was considered an option but discarded, I am of the view that a postponement to allow for a discussion between the minister and the provisional liquidators will only delay the proceedings and not bear fruit.”

This is legally correct.

To enter business rescue, the Companies Act provides that a company is in a distressed financial position and that there is a reasonable prospect of rescuing the company.

‘Rescue’ in context

However, ‘rescuing’ can mean restructuring an entity to either increase the likelihood of its continued existence or to achieve a better return for creditors than immediate liquidation.

The ruling notes that although the provisional liquidators did not formally oppose the application, their reporting affidavit made it clear they hold the view that the Post Office “cannot be rescued” through business rescue proceedings.

“It is almost paradoxical that they propose that SAPO can survive provisional liquidation if their compromise solution is accepted, with the earmarked R2.4 billion being utilised for this purpose,” writes Van der Schyff in her ruling.

“The minister believes that there is a reasonable prospect that either of the objects of business rescue proceedings can be achieved.

“It is gleaned from the minister’s papers, and no objective reason exists to doubt the correctness of the evidence provided under oath, that cabinet has not only pledged to provide SAPO with the initially earmarked R2.4 billion, but also indicated its intention to support SAPO’s application for an additional R3.8 billion in the October budget.

“The undertaking, however, illustrates government’s commitment to providing SAPO with capital and post-commencement finance to facilitate the institution’s turnaround,” she says.

Read: Post Office provisional liquidation elevates risk of further bailouts

Van der Schyff concluded: “Since I am of the view that any possibility of SAPO being rescued depends mainly on the political will to bring about a turnaround, government’s communicated commitment to support any business rescue proceedings by providing capital weighs heavily in support of the application.”

Most South Africans will agree with the part about the lack of political will – pointing to the hundreds of courier companies and other firms making good profits by offering the exact services the Post Office has been offering for ages.

Listen to Ryk van Niekerk’s interview with former SAPO CEO Mark Barnes (or read the transcript here):

You can also listen to the podcast on iono.fm here.