Hot on the heels of the news that Steloy Castings had been liquidated (see story on page 10 in this issue), reportedly owing between R120 and R130 million, and having been in business rescue proceedings since the beginning of July 2016, it was then announced that LH Power Electronics had also been put into provisional liquidation.
Both companies had been in business for over 30 years – Steloy Castings since 1985 and LH Power Electronics since 1980. Both are well known in the foundry industry in South Africa with Steloy Castings manufacturing castings and LH Power Electronics a manufacturer of induction furnaces and high power rectifiers.
There can be many questions asked as to why these two companies, with a relatively long history of being in business, have suddenly had to be liquidated but we will never get the true story. One can speculate but even then you might not get close to the real reason/s.
When you consider that these companies had managed to trade through some extremely difficult conditions from 2008 onwards and we are now at the point where we are seeing green shoots of recovery in the engineering sector, to see two well-established business fail now is really rather sad.
There is nothing new about companies going into liquidation and closing. This is a common occurrence all over the world. But it always leaves a bitter taste, especially for the liquidated company’s creditors. Again, there are many reasons as to why debt has been allowed to occur and, 100 per cent of the time, the creditor will be caught out by the closing of a company that they have been supplying product or services to.
A liquidated company will explain that it had instituted “a comprehensive operative and financial restructuring” plan and that it had been unable to reach a debt-restructuring agreement that would have provided new operating capital, despite extensive negotiations over recent months.
“Over the last year we have incurred significant operating losses, in the midst of the economic downturn and despite considerable efforts by management to address operating issues in manufacturing, financial performance remained under pressure and resulted in a liquidity shortfall,” is another excuse always given.
The potentially disastrous knock-on effects of a business being liquidated are numerous with many creditors having to write off monies owed. Many of the larger companies are fully aware of all the legal avenues designed to help them recoup their owed monies, and they ensure that they have the correct insurance in place to account for any loss in earnings that may come about if and when a client or supplier is unable to fulfill its financial obligations.
However, spare a thought for the employees that are affected by the ‘messy’ business of a company being liquidated. They are the real victims in the whole process. “Meetings have been scheduled to explain the circumstances to workers.” And: “We regret that in spite of all efforts undertaken that the company has not been able to turn around its business,” is normally the final quote.
But as we all know the ‘timing’ is never right for the unfortunate individual. In many cases they (the workers) are usually in debt themselves – it is reported that 78 per cent of South Africans are in debt – and rely heavily on their monthly income just to service this debt. Others might be in the latter stages of their working career and have learnt to overcome such an incident but still get caught short.
So whom can we blame? I believe that someone should be held accountable. It is not unusual for the Directors of a liquidated company to be financially secure and thus not have much stress going forward. But this is my point. The Directors have been in charge of the company and through their decisions, or alternatively non-performance, the company has got into a position where it has to be liquidated. I am generalising, but more often than not this is the case and our South African laws allow the ‘culprits’ to walk away without any recourse. I believe the laws need to be changed so that they, those responsible, are held accountable.