Denel “vindicated” by High Court dismissal of business rescue application


An application for business rescue brought before the North Gauteng High Court this week by some LMT Holdings shareholders was dismissed with costs “due to the applicants’ failure to make out a case supporting the application,” according to a Denel statement.

“Not only did the applicants fail to make out a case supporting what they purported to be an urgent case for business rescue, the court found that they also failed to abide by their own timelines and instead pleaded to be given more time to comply with the basic court processes applicable.
“Denel opposed the application and from the onset rejected allegations that it was the cause of the alleged challenges LMT was faced with, as LMT’s challenges arose as a result of the conduct of the management applicants while they were running the business. This was before Denel decisively intervened earlier this year by seconding the current Chief Executive from its head-office,” the statement said.
“We feel vindicated by the Court in its dismissal of the application with costs including those of both counsel. We are now focusing on operational matters aimed at ensuring LMT delivers to its customers as promised,” Denel Acting Group Chief Executive, Zwelakhe Ntshepe, said after the hearing.
“They further had no response to our contention that the application was designed to create media hype and to exploit the media generated hype of alleged ‘state capture’ of the company by the Guptas which up to now has not been supported by even a shred of evidence,” he added.

LMT is still seen as a valued and strategic asset in the Denel Group and it has been supported with business and resources throughout the to date five-year-long business relationship.

LMT is a 51% Denel owned company that receives support from the company similar to all other Denel-owned businesses, Denel said. “This includes shareholder loans; business origination where Denel has been instrumental in getting LMT work from other clients; deployment of experienced human resources to support and strengthen the business; intervention in cases of poor workmanship; pprocurement of preferable contract terms where necessary; and aassistance in managing commitments to creditors.”
“Denel has historically and is further committed to continue supporting the company as demonstrated in the past. LMT Holdings is a profitable company with at least three contracts that that will keep it going for the next few years; and a high potential major defence contract the company is currently positioning itself for,” Denel’s statement concluded.

Earlier thsi month LMT Holdings accused Denel of being captured by the Gupta family, after Denel allegedly diverted a contract for the Badger vehicle to VR Laser at the Gupta’s request. LMT approached the Pretoria High Court to institute business rescue proceedings as the diversion of the Badger infantry fighting vehicle contract has put the company in a difficult financial situation, according to court papers. The matter was heard on 26 July.

Former LMT CEO Dr Stefan Nell in the court application said when Denel “awarded the remaining Hoefyster [Badger] contracts, previously promised to the company [LMT Holdings], to VR Laser, an entity affiliated to the Gupta family and the son of President Zuma…the conduct of [Denel] in this regard can only be described as state capture by proxy”.

VR Laser is partly owned by Ajay Gupta’s eldest son, Kamal Kant Singhala. VR Laser South Africa is doing steel cutting and fabrication for Denel Land Systems as part of the overall Badger project. The total value of the project is R12.7 billion with VR Laser’s original component making up R400 million of this. Nell alleges the R100 million a year, ten year contract with LMT is now going to VR Laser, giving them an extra R1 billion in work.

According to Nell’s affidavit, LMT is struggling to pay salaries and suppliers because of inadequate funding from Denel, which is putting an R800 million Saudi Arabian vehicle contract in jeopardy. This Middle Eastern order could be worth up to R4 billion if all options are exercised for LM13, LM8 and LM18 vehicles. As a result the company by March was in “dire financial straits and could not service its outstanding order book”. Nell added that Denel rejected a proposal for LMT to get external funding as he had identified a buyer for R200 million worth of shares. He consequently sought business rescue at the courts.