POLITICS

Is Denel at risk of reckless trading? – DA

Party says it is clear from presentation from the SOE that they are trading from a position of insolvency

Is Denel at risk of reckless trading?

10 March 2021

The new Chairperson of the Board of Denel, Ms Gloria Serobe, today emphatically denied that Denel was trading recklessly as put to her in questions by members of SCOPA. She also responded that questions like that should not be asked as it could panic the public.

This is despite the losses of R4.4 billion accrued by Denel in the last three years due to a decline in revenue, and three consecutive audit disclaimers.

The Democratic Alliance (DA) will submit parliamentary questions to the Minister of Public Enterprises, Pravin Gordhan, regarding concerns around reckless spending.

In a presentation to SCOPA, Denel admitted it was insolvent with an increased debt position of R3.2 billion and cash of only R635 million with R331 million ring-fenced and it admitted that it thus faces liquidity issues, resulting in late payments of its debts including salaries.

The Board admitted Denel faced a number of challenges in terms of liquidity including ratings agency Fitch downgrading Denel’s national long-term rating from B(zaf) to CC(zaf), and its national short-term rating from B(zaf) to C(zaf) in August last year.

This has resulted in a weakened credit profile and banks and Financial Institutions are no longer prepared to provide facilities critical for operations and are in fact reducing facilities.

This makes it difficult to attract new clients and combined with a seemly significant loss to its intellectual property through staff members apparently illegally procuring same, essentially looting the information, presumably for gain, makes for a deeply precarious situation.

In terms of S22 (1) of the Companies Act 71 of 2008,  a company must not carry on its business recklessly or negligently and S 77(3)(b) states that any director of a company is liable for any loss, damages or costs sustained by the company as a direct or indirect consequence of the director having done so.

Consequently, a director would have a duty to pass a resolution for a company’s business rescue or alternatively, resolve to wind up or liquidate the company as soon as he or she becomes knowingly aware that the company is either financially distressed or is trading in insolvent circumstances (both factually, in that its liabilities exceed its assets, or commercially, in that it cannot pay its debts to creditors as and when they fall due).

It is clear from the presentation from Denel that they are trading from a position of insolvency, that the Board, whilst admitting to the financials, is denying this to be true.

This despite the Department of Public Enterprise stating to Parliament in October last year that Denel is  insolvent and recorded a loss of R1.7 billion for the 2019/20 financial year, increasing negative equity to over R2 billion.

It can thus only be concluded that the Board is in danger of reckless trading with all the ramifications thereof, including delinquency and personal liability.

Issued by Benedicta van MinnenDA Member of the Standing Committee on Public Accounts, 10 March 2021