ATE Business Rescue Plan headed for court

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The shareholder and creditors of aerospace company Advanced Technologies and Engineering (ATE) are headed for court on a business rescue plan (BRP) for the beleaguered Midrand-based firm. The plan was yesterday adopted by 99.72% of creditors but crucially the shareholders voted against it.

Under the plan, proposed by business rescue practitioner Karl Gribnitz, the company’s creditors will all write off some debt, the business will retrench about 100 out of 350 staff and “white knight” creditor Eurocopter will invest up to R150 million in the firm, thereby taking a 99.99% stake in ATE South Africa (SA).

At yesterday’s meeting Eurocopter voted for the BRP while one creditor abstained and another voted no. The shareholder also voted against the plan. This moves the fight or the future of the company to the High Court, where it must be decided if there is an alternative to the BRP, whether the shareholder is acting reasonably and whether Gribnitz has correctly followed the prescripts of the 2008 Companies Act.

Yesterday’s meeting was a continuation of one started last Thursday, where Gribnitz presented his plan, which ultimate shareholder Jean-Marc Pizano rejected. He asked for a two week delay in the vote to prepare an alternative plan for which he had no detail at the meeting. Seventy-two percent of voting parties were opposed to such a postponement but in the main vote just 68% voted in favour of the BRP, instead of the required 75%. Eurocopter then made a binding offer to purchase the dissenting votes and a new vote was set for 2pm yesterday.

Gribnitz says his investigation of the affairs of the company shows ATE SA is owed in excess of R150 million, “which has become uncollectable from other companies in the ATE Group.” He avers the contracting approach of the ATE Group resulted in “inefficient cost structures, the company being removed from the end-customers and cash being ‘trapped’ by other ATE Group of companies and not coming into the company in a timely manner.
“In addition the company and the ATE Group of companies have invested in and pursued opportunities in markets where historically it had won big contracts. The company failed to resize the business and to implement cost reduction initiatives fast enough when these opportunities did not materialise. The directors [further] maintained the business at high operational cost on the assumption that the company would win new contracts at any moment, of which none has materialised. This increased the losses of the company even further.”

A special Board of Directors meeting held on September 26 resolved to commence BRP in terms of Section 129 of the Act. In a statement in early October, the company said ATE “expected certain major international contracts to have been awarded, which did not materialise in the anticipated timeframe. In September 2011, a substantial foreign debtor of ATE defaulted on an undertaking to make a large payment of several overdue invoices, which caused ATE to become financially distressed (as contemplated in Section 128 (1) (f) of the Act), as it became likely that ATE would not be able to pay all of its debts, as they fall due within the ensuing six months.”

Gribnitz has also approached the company’s end-customers and the French and Hong Kong-based ATE Group companies to novate, cede and assign, renegotiate “or where necessary to terminate contracts with ATE Group companies, to establish direct contracts with the end-customers to cut out additional cost and risk resulting from historical inter group contracting models.” It is not clear what is being done to repatriate the “trapped” funds.

He noted in one instance a pre-payment of R85 million was made “but this was never transferred to … [ATE SA], even though the company is the main industrial centre of the group. In another case, pre-payments were paid over to the company but profits were still being held overseas.” He cautioned that even if the BRP is accepted, the company will make a loss of R50 to R60 million next year.

ATE is design authority for the navigation and weapons system (NWS) of the South African Air Force’s fleet of 24 BAE Systems Hawk Mk120 lead in fighter trainers. The NWS was developed under a R500 million (US$73 million at the time) prime avionics subcontract from BAE Systems, the first time that the latter has placed such a contract with a foreign company. BAE Systems Hawk South Africa Project Director Mike Rennardson in May 2006 said the order, when placed in April 2000, was the “biggest ever contract placed on a South African private sector aerospace firm.”

ATE has previous experience in this field, having developed the avionics for the Rooivalk attack helicopter, the Pilatus Astra primary trainer and the NWS and mission computer for the Spanish Air Force’s Mirage F-1 upgrade. The company also modernised a number of Algerian Air Force Mi-24 attack helicopters. ATE’s NWS is a fully configurable “glass cockpit” integrated with an advanced navigation and mission computer system and an `intelligent’ stores management and weapons-delivery system.

ATE is also the original equipment manufacturer for the SA Army’s Vulture unmanned aerial system (UAS), acquired under Project Klooster. There has been speculation that a system was sold to China. In June 2009 the company said it had won a first export order for its Kiwit Mini Aerial Observation System (MAOS). A company spokesman said the sale was to an undisclosed Asian country.

The Kiwit has an endurance of one hour at an altitude of 500 feet above ground level and can perform aerial observation tasks at ranges of up to 5km. The air vehicle weighs 3.5 kg and takes 10 minutes to assemble. It made its debut at Africa Aerospace and Defence (AAD) show in Cape Town in September 2008. At the time the company also hoped to sell the system to the SA Police Service to support Operation Kgwele, the FIFA Confederations Cup and World Cup security undertaking.

Also in June 2009, ATE and European helicopter giant Eurocopter announced they were developing a new-generation Stand-Alone Weapon System (SAWS) suitable for any of the EADS subsidiary’s light and medium helicopter products. A prototype was unveiled at the Paris Air Show, fitted to an AS550 Fennec light military helicopter. In a joint media release the two companies say the SAWS addresses “increased market demand for helicopters incorporating a weapon system able to match evolving mission scenarios in current and future conflicts.” It was later reported the system was being developed for a Middle Eastern customer.



Business rescue proceedings are a new phenomenon in South African law and is similar to the US “Chapter 11” bankruptcy proceedings.