Group Five: fighting over the scraps
With creditors unlikely to claw back much from the company’s business rescue, shareholders are out in the cold
The choice of Rosebank Union Church in Sandton for an update on Group Five’s business rescue was unusual, but perhaps appropriate.
Right now, the former construction giant needs all the help it can get.
Sitting on the steps leading to the pulpit, business rescue practitioners Dave Lake and Peter van den Steen didn’t sugar-coat the news: shareholders are likely to walk away with nothing.
"In our view, your shares and investments in the company are not worth much at all," said Lake, to a tiny group of about 15.
Lake and Van den Steen say Group Five is not in a financial position to fully reimburse its creditors either.
For the eight months ended February, Group Five’s losses had climbed to R1.77bn, with losses running at between R50m and R100m a month. Within Group Five Ltd, the practitioners say there is zero value after rehabilitation costs and a R650m loan, which is in default.
In our view, your shares and investments in the company are not worth much at allDave Lake
Group Five Construction had pledged its European assets as security for the funds, while any money made from the sale of the company’s Everite business will go towards paying off the debt.
It doesn’t mean there won’t be a vicious fight for what’s left: a group of investors led by David Swartz intends to launch a class action lawsuit against the company and its directors.
Swartz says shareholders are aggrieved that the board did not do enough to hold the company’s executives accountable. And he argues that a relatively upbeat Sens statement, issued by the company two weeks before it succumbed to business rescue, was clearly misleading. He has also questioned the whereabouts of the company’s risk committee when the rot set in. "Good question," says Lake.
But he and Van den Steen have poured cold water on any immediate forensic investigation. "Business rescue is not a backward-looking process. We are trying to take the business forward. We are not given investigative tools that are given to liquidators. We do not have that power at all," says Lake.
He does indicate that they’ve found "nothing" to justify the cost of a forensic investigation.
They plan to complete the bulk of the business rescue by early 2020, though residual matters such as litigation, guarantees and international claims may take longer to resolve.
Under the Companies Act, business rescue usually follows one of two approaches: returning a company to solvency by restructuring its debt and equity, or ensuring a better return for creditors and shareholders than would have resulted from an immediate liquidation.