Provisional liquidators argue against SA Post Office business rescue

The joint provisional liquidators of the SA Post Office (Sapo) do not believe business rescue of the heavily indebted state-owned company is the best way to turn it around.

Minister of communications and digital technologies Mondli Gungubele has made an urgent application to the Pretoria high court for the business rescue of the entity, which will be heard on Tuesday. He argues that creditors will get a better deal under business rescue — 10c in the rand, compared with the 3.99c in the rand they will get under liquidation — because government will bail out Sapo to the tune of R6.2bn but only on condition it goes into business rescue and is not liquidated.

But provisional liquidators Anton Shaban and Hlamalane Musi believe a formal compromise with creditors under section 155 of the Companies Act would be more suitable in terms of cost and efficiency and would yield a better return for creditors than Gungubele’s proposed business rescue plan.

They say a compromise solution, which would only take a few months to complete, would allow Sapo to emerge from provisional liquidation as solvent . Government could then undertake the operational restructuring of the company.

They estimate that in a compromise arrangement, a dividend to non-employment related creditors of either 12c or 67c in the rand may be possible by end-October 2023.

The 12c in the rand settlement assumes that Sapo receives the R2.4bn bailout from government. 

“The higher distribution (67c in the rand) is possible if the government honours its statutory guarantee obligation (of R1.1bn) to the Post Office Retirement Fund, leaving a greater share of the R2.4bn that was committed in the recent budget for distribution among non-employment related creditors. In both scenarios, employment related creditors are estimated to receive 100c/R.”

Shaban said in his affidavit the application for business rescue understates Sapo creditors by about R800m.

A business rescue of Sapo, which has about R9.4bn in debt, is estimated to cost R140m while a provisional liquidation is estimated to cost R42.5m. It was placed into provisional liquidation in February.

Shaban and Musi argue the business rescue envisaged by Gungubele is predicated upon uncertain events.

One of these is the enactment of the Post Office Amendment Bill, which to date has not been passed and could still be challenged as it may create a government monopoly. The second event, that has not yet occurred, is a further unallocated injection of R3.8bn by Treasury which would be in addition to the allocation of R2.4bn in the February budget. The R3.8bn allocation is assumed in the business rescue plan.

The third uncertainty is the operational restructuring in business rescue which would need to take place, and which would take substantial time, cost and effort.

Shaban and Musi also say the business rescue plan fails to consider its impact on the post office subsidiary Postbank, which can only conduct its business with the financial service provider licence held by Sapo. Gungubele’s application failed to cite the regulator of financial service providers as required by the Financial Advisory and Intermediary Services Act.

“Moreover, if the Postbank is to receive 10c/R, as envisaged in the minister’s application, it will not meet the requirements to obtain a licence as a retail bank, something that is envisaged by the Postbank Bill that was passed by National Assembly on February 28 2023 and the National Council of Provinces on June 21 2023, and which is now awaiting assent by the president to be enacted into law.”

Shaban says under a compromise Postbank could be excluded from any proposal made to Sapo creditors so its full claim of R3.93bn would be paid out. It would therefore be able to meet the capital adequacy ratios required to obtain a banking licence which would not be the case under the business rescue plan.

Shaban and Musi point out that Sapo and government ignored a ruling by the Supreme Court of Appeal to pay the retirement fund deductions from employees’ salaries to the Post Office Retirement Fund, as well as a judgment handed down by the Pretoria high court, to pay the medical aid deductions from employees’ salaries to Medipos Medical Aid, rather than using those deductions to settle the post office’s operational costs.

The court will have to decide whether business rescue or provisional liquidation is the best option to restructure Sapo for the benefit of both creditors and stakeholders.

ensorl@businesslive.co.za