The business rescue process for the Ahrlac aircraft, being developed by Paramount and the Aerospace Development Corporation (ADC), is fraught with complications as the Potgieters (50% shareholders in ADC) are now seeking liquidation. The business rescue practitioner and Paramount Aerospace Holdings (the other 50% shareholder) are opposing the Potgieter’s liquidation application.
The Ahrlac’s developer, original equipment manufacturer and designer is the Aerospace Development Corporation, of which Paul Potgieter Snr and Paul Potgieter Jnr, are executive managers and directors. Paramount Aerospace Holdings (PAH), a Paramount Group company, are 50% shareholders in ADC. Paramount Logistics Corporation Ltd, another Paramount Group company, is the launch customer for the Ahrlac aircraft.
Due to various reasons, including a dispute over intellectual property and funding, ADC has since the end of last year been unable to manufacture, design or develop the aircraft. The Potgieters advised ADCs staff that they may seek other job opportunities and work elsewhere as ADC cannot pay their salaries nor suppliers.
On the 28 February 2019, Paramount Aerospace Holdings applied to the Pretoria High Court to place ADC in business rescue, this application was initially resisted by the Potgieters. On 20 March, the Potgieters agreed to place ADC in business rescue and signed an ADC board resolution to that effect. The High Court subsequently placed ADC into business rescue. The Potgieter family has had four main issues with the business rescue process concerning: the post commencement financing (PCF) to be provided by Paramount, ownership of intellectual property (IP), funding by Riverston and the decision made by the ADC board (which the Potgieter’s agreed too and signed off on) to put the business into rescue instead of applying for immediate liquidation. As a result, the Potgieter’s seem to have changed their position and are now advocating that the Ahrlac programme be liquidated rather than continue with the business rescue process.
In an affidavit by Stefan Smyth, the business rescue practitioner from PricewaterhouseCoopers, he states that the Potgieter family, “…fail to appreciate that business rescue proceedings are designed for the development and implementation of a plan to rescue the company in a manner that maximises the likelihood of the company continuing in existence on a solvent basis.”
In the business rescue proceedings to date, Smyth was only able to find funding for business rescue through Paramount. The Potgieter family stated that the PCF agreement is based on Paramount converting funding into equity, but Smyth’s affidavit advises that “ No funds advanced by Paramount as PCF have been converted into equity as the applicants seek to imply”.
In addition, Smyth’s affidavit stated, “were it were not for the PCF provided, the ADC group would have been liquidated; the PCF provided is provided on eminently reasonable terms – interest-free and to cover BR [business rescue] costs as well as a contribution to employee salaries.”
Riverston, a separate company that had a loan funding agreement with ADC, failed to loan the full amount, short of R49.5 million, according to Smyth. However, in the business rescue practitioner’s investigations, he found that, “The ADC group had in excess of R60 million in outstanding trade creditors and employee arrears. Accordingly, the balance of R49.5 million outstanding in terms of the Riverston loan agreement would have been insufficient to settle these current liabilities, let alone provide sufficient working capital to complete the two aircraft to be delivered to Paramount Logistics Corporation (PLC)”.
The affidavit by Stefan Smyth goes on to say that the alleged breach in contract by Riverston dates back to before business rescue operations began and yet these claims were not pursued by the Potgieter family.
The Potgieter family maintain that have been heavily concerned that the IP of Ahrlac is in jeopardy. Their affidavit has proposed that ownership of the IP and its location shall be regularised and resolved in the ADC’s business rescue plan.
The Business Rescue Practitioner’s affidavit concludes by stating that, “It appears that their [Potgieter family] expectations regarding business rescue were wrong and that their expectations for a liquidation are also wrong”. The affidavit believes that the Potgieter family are pushing for provisional liquidation because it would give them a better standing in the ADCs shareholder dispute.
The future of ADC will be determined by a vote by the creditors of ADC on whether or not to adopt the Business Rescue plan, which is anticipated to be published by 1 August 2019.