Denel “reckless trading” questions for Minister Gordhan

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Public Enterprises Minister Pravin Gordhan as the “shareholder” (government) representative for Denel will be on the receiving end of questions regarding reckless spending allegations at the troubled defence and technology conglomerate.

This emerged after a Denel delegation, led by current acting board chair Gloria Serobe, this week denied the allegations when addressing Parliament’s financial watchdog, its Standing Committee on Public Accounts (SCOPA).

“We have challenges, but are not at the stage where Denel is trading recklessly,” Serobe, acting Denel board chair following the resignation of Monhla Hlahla last month, was reported as telling the Parliamentary oversight committee. Hlahla’s departure was made public via a notice to the Johannesburg Stock Exchange (JSE) saying it was effective from 24 February. It is not known yet whether Hlahla remains a member of the nine-member Presidential State-owned Enterprises (SOEs) Council announced by President Cyril Ramaphosa in his February State of the Nation Address (SONA).

The Democratic Alliance (DA) in the form of SCOPA member Benedicta van Minnen indicated it would approach Gordhan for detail of the alleged reckless spending.

She used the Companies Act to strengthen her argument for more information.

“In terms of Section 22(1) of the Companies Act, a company must not carry on its business recklessly or negligently and Section 77(3) (b) states any director of a company is liable for any loss, damages or costs sustained by the company as a direct or indirect consequence of the director having done so.

“Consequently, a director has a duty to pass a resolution for a company’s business rescue or alternatively, resolve to wind up or liquidate the company as soon as he or she becomes knowingly aware the company is either financially distressed or is trading in insolvent circumstances,” she said in a statement adding “both are factually correct, in Denel’s liabilities exceed its assets, or commercially, in that it cannot pay its debts to creditors as and when they fall due”.

Van Minnen elaborated on the Denel presentation saying it is “clear Denel is trading from a position of insolvency in that its board, while admitting to the financials, denies this to be true”.

“The only conclusion is the Denel board is in danger of reckless trading with all the ramifications this implies, including delinquency and personal liability.”

There was, at the time of publishing, no indication from Denel on either a new chair or replacement directors for those who resigned last month. These will apparently, when made and confirmed, come from Gordhan’s office.

Denel is struggling with liquidity problems. Its latest financial results for the year to the end of March 2020 showed it was insolvent, with liabilities exceeding assets by more than R2 billion.

It forecast a loss of over R1.5 billion for the year to end-March 2021 after a R2 billion loss last year.

After National Treasury did not allocate Denel new bailout funds in the 2021 budget presented last month, the company suffered a string of resignations from its board of directors.

Serobe said the no financial support revelation in the budget as “quite overwhelming”. She said  the board did a financial distress test every six months and a “going concern” test every 12 months.



Deputy Public Enterprises Minister Phumulo Masualle said Denel was a national strategic asset and his ministry was “looking at sharpening the turnaround strategy”.