​African Global Operations Group (former- Bosasa) to Liquidate, Beyond Rehabilitation Says SAIPA

Faith Ngwenya, Technical and Standards Executive at the South African Institute of Professional Accountants (SAIPA), says that while it is possible, it is highly unlikely that African Global Operations Group could be rehabilitated if sold.
 
eNCA broke the story early today that South African banks had given notice to African Global, formerly called Bosasa, that they would terminate its accounts at the end of February. This was reportedly done for fear of “reputational damage” from doing business with the company following revelations of its alleged  bribery of government officials to win tenders. 
 
In response, African Global announced it has filed for voluntary liquidation in accordance with the provisions of the Companies Act as it will not be able to pay its creditors without proper banking facilities.
 
Irreparable damage
Ngwenya says that usually voluntary liquidation is more relaxed than forced liquidation, giving the directors time to get their affairs in order before winding down. However, in this case, the company will not have the banking services required to receive income or pay creditors and employees. “This is a very different scenario because of the short period in which the company has to act,” she says. “But it’s not probable they would be able to wrap everything up in 10 days.” 
 
When asked if it was possible for the company to be bought and turned around, Ngwenya said under normal circumstances it would be possible , however in the African Global case it was doubtful. She observed that the damage to African Global’s reputation would be too extensive, resulting in an irreparable loss of customer confidence and market value. “Any buyer would find it very difficult to restore its viability as a going concern,” she concluded.
 
Employees and subsidiaries
With the inability to continue operating, it is most definite that a reported 4500 workers will lose their jobs. Any contracts the company entered into would also have to be terminated, resulting in loss of business for their subcontractors and suppliers as well. Says Ngwenya, “Because they have a large number of government contracts, some of them for critical services, it will have to be determined whether and how these would be transitioned smoothly to alternate vendors.”
 
Ngwenya also noted that the business had several subsidiaries that too faced an uncertain future. She questioned whether these business units would go into liquidation as well or if they would be spared. If the latter, would they be able to absorb the employees that would otherwise be retrenched? “Unfortunately, a scandal of this magnitude taints the entire company, so the next few days will tell us if these subsidiaries will suffer the same fate,” she says.
 
Business rescue option
Since SAIPA offers a business rescue designation, Ngwenya was able to comment on whether African Global should have opted for business rescue as they are entitled to do under the Companies Act. “Business rescue is always the preferred alternative to liquidation because it preserves jobs that would otherwise be lost as well as the economic contribution of the organisation,” she says. “As we’ve noted in this case, though, the loss of trust in the company’s brand is too great and its closure is unfortunately inevitable.”
 
ENDS
 
MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@thatpoint.co.za, www.atthatpoint.co.za
 
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