Put SOEs into business rescue to turn them around – expert
Alex Eliott says it is possible to rescue SOEs, especially if there is no political interference, as that causes a lot of problems.
A leading expert on business rescue and liquidation says business rescue is an ideal option to extricate some state-owned entities (SOEs) from their financial quagmire.
This plan will only succeed, however, if there is no interference from government.
According to business rescue expert Alex Eliott, a partner at global law firm Hogan Lovells, the government should take a back seat and let the SOEs be managed properly as companies.
Eliott said there was a need to put most, if not all, into business rescue and appoint a good rescue practitioner who would turn each of the SOEs around.
The practitioner must be given a clear mandate to achieve a turnaround and do a clean-up to put the companies back on a sound financial footing and operating smoothly.
“There is a need to turn these SOEs around without any political interference. It is common knowledge that they are in a very bad financial situation. Some are not delivering services and are costing the taxpayer a lot of money. I think that some of the smaller state-owned companies can benefit and the country can benefit tremendously from business rescue,” Eliott said.
He said a well-executed business rescue would usually succeed.
He represented the National Union of Metalworkers (Numsa) in the 2015 groundbreaking matter of the union versus Wilro Supplies CC, which was forced into business rescue by the union’s high court application.
The rescue saved close to 160 jobs after the firm had already retrenched 16 employees, all Numsa members. The union challenged their dismissals in the Labour Court, which declared the dismissals to be unfair and ordered the employees be reinstated.
When Wilro applied for liquidation, Numsa brought a counter application to place Wilro under supervision and business rescue.
In the case of the SOEs, Eliott said it was possible to rescue them, especially if there was no political interference as that caused a lot of problems.
The expert suggested that having the government as a powerful single shareholder was often problematic due to political interests that interfered with management of the SOEs.
“Get a good practitioner there to sort out all their problems and turn it around without political interference. There is a huge problem when there is political interference.
“If the government is the shareholder of a company, there is this tension and it is basically political,” he said.
“A company is supposed to be run by its board of directors, not its shareholders. A shareholder is an owner, not a manager, and the board of directors must manage the company. You can’t have an owner telling the managers how to manage.
“His only job is to say if you do a good job and then to leave you alone, or say you do a bad job and hire somebody else,” Eliott said.
He said there was often no need for financially distressed SOEs to implement retrenchments as earlier suggested, as the problem was usually top management, including the executives, and not just the board.