Beleaguered state-owned arms manufacturer Denel has managed to avert a liquidation attempt by Saab Grintek at the eleventh hour by reaching an out-of-court agreement with it.

The development came as Denel faced a Johannesburg labour court application by trade union Solidarity for the payment of more than R60m in long outstanding salaries.

The settlement agreement with Saab Grintek means that the liquidation application based on a debt of R126m was struck off the roll at the high court in Pretoria, which was due to hear the case on Monday.

While no comment was forthcoming from Denel on the terms of the settlement, it is possible that the cash injection for the state-owned enterprise (SOE), which is expected to be announced in next month’s medium-term budget policy statement, could have played a role.

An intergovernmental team from the departments of public enterprises, defence and the Treasury has been working on a plan to provide financial support to the arms manufacturer so that it can restructure and have the working capital to execute orders. The government will also have to ensure that Denel’s state-guaranteed loans are paid off.

The technically insolvent group has been making losses for the past four years, and this has continued in the current year with the result that it has been unable to pay staff salaries. An exodus of skilled staff has made it difficult to fulfil orders.

In August, interim group CEO William Hlakoane told MPs that Denel’s available cash was insufficient to meet operational requirements, including the payment of salaries and suppliers. The group, he said, owed R636m to employees and related costs, and about R900m to suppliers. The latest cash-flow projections for the 2021/2022 financial year indicated a negative R600m if no mitigation action was taken.

Union Solidarity has asked the Johannesburg labour court to order Denel to pay over R60m in unpaid salaries to its 950 members, who have not been paid in full since April last year. Employees are getting a percentage of what is owed, with the union providing food parcels to its Denel members in recent months.

The court has been asked to order Denel to pay outstanding salaries for the months from August 2020 to July this year, as well as 7% interest. Denel is not opposing the application, which was postponed on Thursday as the judge required further documents. 

This is not the first time Solidarity has dragged the SOE to court. In August 2020, it took Denel to court to ask for the outstanding salaries, pension fund and medical aid payments for April to July 2020. Despite an order by the court in August last year that must be paid, Denel did not do so.  

Solidarity then unsuccessfully tried to have its current and former directors and CEOs found in contempt of court. With money still outstanding a year later, the sheriff of the court attached some of Denel’s assets such as vehicles and office equipment to sell, but the debt was paid a few days before the auction was due to take place.

Solidarity sector co-ordinator for defence and aviation Derek Mans said Solidarity was preparing a third case to ask for outstanding salaries and third-party payments to pension funds and medical aids due from August this year.



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