Auditor-general Kimi Makwetu has questioned why South African Airways (SAA) did not report reasons for not adopting a resolution to file for business rescue while the company was in financial distress, as required by the Companies Act.
“The history of losses, lack of capital and volatility in exchange rates along with maturing loans and working capital deficiencies indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern,” wrote Makwetu.
The successive boards of directors of SAA should be held responsbile and prosecuted for failing to adhere to the provisions of the Companies Act 2008 as amended (“the Act”) as it applies to companies in financial distress.
In particular Section 214(1)(c) states “A person is guilty of an offence if the person …..was knowingly a party to an act or omission by a company calculated to defraud a creditor or employee of the company, or a holder of the company’s securities, or with another fraudulent purpose”.
Here I specifically refer to the provisions of Section 4(1) of the Act which requires the board to undertake a solvency and liquidity test, which reads as follows: “… company satisfies the solvency and liquidity test at a particular time if, considering all reasonably foreseeable financial circumstances of the company at that time, (a) the assets of the company, as fairly valued, equal or exceed the liabilities of the company, as fairly valued; and (b) it appears that the company will be able to pay its debts as they become due in the ordinary course of business for a period of (i) 12 months after the date on which the test is considered.”
To my knowledge these successive boards have omitted to perform this test, not even once. It is likely that they continued to assume that the regular annual financial bailouts from Treasury would be forthcoming.
Failure to comply with Section 4 exposes each individual director to being personally prosecuted, in addition to being held personally liable for the debts of SAA while it continues to trade under insolvent conditions.
CIPC recently – for the very first time to my knowledge – took up the cudgels against Steinhoff International Holdings Ltd in terms of Section 214, requesting that it be furnished with information, within a period of 60 days, to assist in determining if any person(s) have failed to comply with the provisions of that Section.
It will be interesting to see when, and if, CIPC will pounce on SAA and its successive boards for their patent failure over several years to properly discharge their fiduciary duties as directors of an SOE that falls under the Companies Act.