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Home Opinion Bosasa liquidation will leave directors financially unscathed and employees reeling

Bosasa liquidation will leave directors financially unscathed and employees reeling

The pitiful shenanigans of Bosasa bosses, as revealed at the Zondo Commission, have forced the company’to cease operations. But why liquidate a company that is not technically insolvent? Paulina French thinks that directors have selfishly opted for liquidation; ignoring the devastating consequences that this will have for their former employees.

At the Judicial Commission of Inquiry into Allegations of State Capture (Zondo Commission), we have listened to whistleblowers share their testimonies of what they witnessed, or of what in some instances they were themselves guilty of, by way of systemic fraud and corruption in the public sector.

The testimony of Angelo Agrizzi, the former Chief Operations Officer of Bosasa (now known as African Global Operations (AGO)), has produced significant repercussions. And, late last week AGO applied for voluntary liquidation.

Voluntary liquidation is the winding-up and the dissolution of a company. This normally happens when the company’s directors decide that the company has no reason to continue operating.

There are also some advantages to liquidating a company, when it is not insolvent. It is simple, inexpensive, expedient, the appointment of a liquidator is uncomplicated and the actual process of liquidation is relatively easy to implement.  

After liquidation, the company ceases to exist. In terms of the Companies Act 71 of 2008, voluntary liquidation settles all the company’s debts. It also prevents the directors from being held personally liable for those debts of the company for which they had not signed surety.

More, given that AGO is not insolvent, its directors will not be financially liable in any way. This means there is nothing that would preclude them from starting another entity, trading under a different name.

In a report on 23 February, Johannes Gumede, the former chairperson of the AGO Board insisted that the banks and “other national and international financial institutions”, were to blame, for forcing them into liquidation when they closed the company’s accounts and refused to help. This meant that “[t]ragically the group will be unable to trade without a bank account”, said Gumede. 

With respect, Mr Gumede, AGO and the Board of Directors were the orchestrators of the company’s demise — and not the banks. Neither, is the media too blame for its supposed “biased reporting”.

Business Live reported that as a result of the voluntary liquidation, more than 4500 employees stand to lose their jobs. In an economy with rampant unemployment, this is likely to have a detrimental effect not only on these employees but also on the families who rely on them.

Unlike their employees, the directors have likely made sure that they are financially well-provided for.

Section 76 of the Companies Act clearly contains the Standards of Directors Conduct. S76(2)(a) (i), clearly states that a director of a company must not use the position of director to gain advantage for the director, or for another person, other than the company or wholly owned subsidiary of the company.

The allegations of bribery and corruption made at the Zondo Commission will of course still need to be proven.

It is likely that the directors will simply reinvent a company to enable them to carry on trading in South Africa. It is also possible that many of the directors have taken their illicit gains offshore. And these will be increasingly difficult to recoup back into the South African economy.

Agrizzi testified that illegal cash payments were passed off in the company’s accounting systems.

Not only should the Companies Act be considered, but the King IV: Code on Corporate Governance for South Africa 2016 specifically includes principles that a Company should be following to contribute to the company being run ethically and in line with best practices from a governance perspective.

It seems that the principles encompassing leadership, ethics and corporate citizenship, did not appear to be a priority for the Board based on the corruption and fraud allegations made so far,

Unfortunately, the wheels of justice turn very slowly and evidence of any wrongdoing by the directors will have to be painstakingly collected.

The South African Revenue Service (SARS) and its Illicit Economy Unit is set to conduct a tax investigation into all companies, directors and related parties after the necessary legal proceedings have been concluded. But, this will take some time.

We must not forget that there were those in government who enabled this corruption to take place.  A number of ministers have been implicated. Unsurprisingly — all have denied receiving any donations or payments.

The current ruling party has also benefitted from funds donated to them by AGO.  News24  reports that AGO  set up  “election war rooms”, at its headquarters in Krugersdorp, in the run-up to at least three previous elections.

At least R40-million has been donated to the ANC over the years.  It is possible that AGO has made generous donations to other political parties as well.

More, it is estimated that AGO was awarded more than R12-billion in government contracts, since 2003. Companies with the necessary skills and resources to potentially deliver a better product or service were likely overlooked in the process.

When corruption is exercised on this abominable scale as revealed by the testimony of Angelo Agrizzi, among others, it is ordinary employees, many who are teetering on the breadline, that ultimately have their rights violated.

Catholic social teaching holds that workers must always be respected and valued.

However, it seems that in the case of AGO, as in so many others, it’s the directors, those in charge of running operations and covering-up illicit activities, not to mention members of the ruling party and ministers of our Government that stand to profit.  

These had one objective in mind: to enrich themselves as much as possible, in spite of the detrimental effects that their criminal actions might, and did, bring to others.

* The opinions expressed here by Spotlight.Africa contributors and editors are their own and not official statements of the Society of Jesus in South Africa or of the Catholic Church unless explicitly stated.

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Paulina French
Paulina is a Chartered Accountant who spent a number of years working for an international auditing firm and with a major retail bank. She is married with two daughters. On the birth of her second daughter she left the corporate world and became a full-time mom. She spent a few years doing some consulting work and previously worked at the Jesuit Institute.

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