The government is at loggerheads with the provisional liquidators of the SA Post Office about how the troubled state-owned enterprise (SOE) should be restructured to prevent the worst-case scenario of it being forced to close its doors permanently.

Communications and Digital Technologies Minister Mondli Gungubele, the shareholder representative of the SA Post Office, insists that the SOE should be placed under business rescue even though it is in the throes of provisional liquidation. Meanwhile, the appointed provisional liquidators of the SA Post Office, Anton Shaban and Jerry Musi, believe that the SOE’s financial situation is too far gone and that business rescue will not work.

The fate of the SA Post Office is being argued at the High Court in Pretoria, which will decide later if the SOE is best restructured under business rescue or the ongoing provisional liquidation process.

Gungubele wants the SA Post Office to follow in the footsteps of SOEs including SAA, Mango Airlines and SA Express, which have all undergone a business rescue process.

Business rescue, provided for by the Companies Act, is an attempt to rehabilitate financially distressed companies by restructuring their affairs. The objective is to enable a company to continue operating while being restructured, temporarily suspending payments to creditors and saving some jobs.

Meanwhile, a provisional liquidation portends a process of winding up a company, which involves its assets being sold and the proceeds from this sale being used to pay liquidation expenses and its creditors. It is usually hard for companies to be rehabilitated and resume trading at this juncture.

The case for business rescue

In court, Gungubele has argued that the SA Post Office has a greater chance of being restructured through business rescue, which would help the SOE return to trading on an “independent, solvent and sustainable basis”.  

Gungubele believes that provisional liquidation would “ultimately” lead to the permanent closure of the SA Post Office, undermining the government’s legal obligation to have an entity that offers the public “crucial” postal delivery services.

“Such services enable people, especially in remote and otherwise underserviced areas, to access communications and government services where they would otherwise be unable to do so,” he said.

The SA Post Office, working with its affiliated bank, the Post Bank, is also responsible for distributing social grant payments to more than 100,000 beneficiaries every month. This crucial function could be disrupted by a liquidation process, Gungubele said.

“Sapo’s [the SA Post Office’s] immediate liquidation would result in the cessation of Sapo’s limited social grant payment functions, depriving those who rely upon grants from their only source of income. This would directly impact approximately 110,000 grant recipients who collect their grants at Sapo branches.”

He also believes a liquidation would pose a threat to the banking system. “There is a real possibility that Sapo’s immediate liquidation would threaten depositors’ funds, undermining their faith in what is otherwise a solvent and viable state bank. The possible contagion is difficult to predict.”

Enormous financial crisis

The SA Post Office is far from being solvent as it owes creditors more than R4.5-billion that it cannot afford to pay. The SOE owes R2.5-billion to the SA Revenue Service, the Unemployment Insurance Fund, the medical aid scheme, and the retirement fund for its workers. It would deduct these statutory payments from the salaries of its workers, but fail to hand over the deducted funds to relevant institutions. It owes R970.8-million to landlords that lease properties to it for its postal services branches and to companies that provided it with security, technology, legal and building maintenance services. It owes its workers R150-million in outstanding salary payments.

Gungubele said the government was prepared to settle the amounts owed by providing the SA Post Office with another taxpayer-funded bailout, but only if it went through a business rescue process. He said the Cabinet was prepared to give the SA Post Office a bailout of R3.8-billion — over and above the R2.4-billion that the National Treasury allocated to the SOE in the February Budget.

Under a business rescue process, creditors could recoup the amounts they were owed, said Gungubele, adding that there were slim chances of recompense under liquidation. The government expects creditors to be paid 10 cents in every rand they are owed under a business rescue process. A bigger loss under liquidation is expected as creditors stand to receive 4c in every rand owed.

A case for liquidation or debt compromise

The SA Post Office provisional liquidators, Shaban and Musi, have poked holes in the government’s desired business rescue scenario, saying it is based on “uncertain events”. The pair said that for business rescue to work, the SA Post Office would need billions of rands in extra funding, which the government is yet to secure through a lengthy process that also involves approval from the National Treasury. Time is not on the SA Post Office’s side given the enormity of its financial crisis.

Shaban and Musi said a complete overhaul of the SA Post Office’s business operations, as envisaged in the government’s business rescue scenario, would “take substantial time, cost, and effort”. For the Post Office to expand its mandate beyond postal services to include offering e-commerce services, the Post Office Amendment Bill has to be enacted. Despite the bill being tabled, it has for months not been enacted.

Instead of embarking on a business rescue process, Shaban and Musi have proposed implementing a compromise agreement under section 155 of the Companies Act. This section allows a company to put forward a compromise agreement to creditors and bypass it being liquidated or placed into business rescue. Troubled retailer Steinhoff recently used this section when it entered into a R25-billion settlement agreement with its creditors and shareholders to avoid being liquidated.

Read more in Daily Maverick: Steinhoff increases its settlement offer by R4bn 

Shaban and Musi said it would be better for the SA Post Office and its creditors if the SOE’s debts were cleared in a compromise, so that “the Post Office can emerge from provisional liquidation as a solvent, going concern”.

In a compromise settlement, Shaban and Musi estimate that creditors could receive from 12 to 67 cents for every rand owed — substantially more than the 10c that Gungubele has pencilled in under a business rescue scenario.

But to realise the 12 to 67 cents, Shaban and Musi said the government will have to settle statutory debt, mainly the more than R1.2-billion owed for retirement fund contributions on behalf of its workers. It is up to the court and creditors to decide on the best remedy for the troubled SA Post Office. DM