Sus­pended firms should keep in­vestors in the loop, writes Marc Hasen­fuss

Financial Mail - Investors Monthly - - Front Page -

The un­fold­ing re­ports from African Bank is con­firm­ing share­hold­ers’ worst sus­pi­cions — that man­age­ment might well have been reck­less in its lend­ing poli­cies be­fore the cu­ra­tor was parachuted in.

Share­hold­ers in African Bank In­vest­ments Ltd (Abil) might now be giv­ing up hope of any mean­ing­ful value be­ing sal­vaged from the once mighty mass bank­ing ini­tia­tive.

In a way, though, Abil share­hold­ers are for­tu­nate. They will prob­a­bly walk away with the one thing the share­hold­ers in so many col­lapsed com­pa­nies never re­ceive — and that’s clo­sure.

Abil has been the sub­ject of a com­mis­sion of in­quiry (the re­port is now in the hands of the Re­serve Bank) that should shed light on de­vel­op­ments that brought about its demise. The cu­ra­tor­ship is in­struc­tive for share­hold­ers as well, and at least keeps them abreast of ef­forts to sal­vage some value ahead of a mooted re-list­ing of the so-called “good bank”.

The is­sue has been front of mind and will con­tinue to be, pos­si­bly be­cause of Abil’s size — in other words the pos­si­ble reper­cus­sions its col­lapse could have for the lo­cal bank­ing sys­tem — and the media frenzy around the rea­sons for its de­cline.

But for the most part, it’s a very dif­fer­ent story when smaller com­pa­nies or lesser-known coun­ters run into a brick wall. The JSE ob­vi­ously has lit­tle choice other than to sus­pend trade in the trou­bled com­pa­nies’ shares. The sus­pen­sion, un­for­tu­nately, can of­fer dis­tressed com­pa­nies a very con­ve­nient es­cape clause.

Since most com­pany col­lapses are pre­ceded by or trig­ger a flurry of res­ig­na­tions by di­rec­tors, both ex­ec­u­tive and nonex­ec­u­tive, the sus­pen­sion of trad­ing of­ten means that com­mu­ni­ca­tion to share­hold­ers fiz­zles out. And why not? If the com­pany is bro­ken be­yond re­pair, why should di­rec­tors bother with the niceties of good cor­po­rate gov­er­nance?

There are also “prac­ti­cal” hitches. Fi­nan­cially strained com­pa­nies might not be able to af­ford the fees of cor­po­rate ad­vis­ers, and some­times even the au­dit fees can be out­stand­ing, which then can lead to com­pli­ca­tions in is­su­ing fi­nan­cial state­ments.

Scep­ti­cal mar­ket par­tic­i­pants will say “tough takkie”, and urge share­hold­ers to sim­ply let go and move on. While it’s prob­a­bly best not to mope over a port­fo­lio loss, the truth is that share­hold­ers do have a right to know the ul­ti­mate fate of their in­vest­ment.

Un­for­tu­nately, once a com­pany’s list­ing is ter­mi­nated by the JSE — an event that will au­to­mat­i­cally fol­low when a com­pany does not pub­lish au­dited fi­nan­cial re­sults — a share­holder has no real re­course in de­ter­min­ing whether there is pos­si­bly a liq­ui­da­tion value to be gar­nered or the in­vest­ment is a com­plete write-off.

It must be said that a few sus­pended com­pa­nies have done their best to keep their share­hold­ers in the loop.

Ju­nior miner Plat­fields is­sues quar­terly up­dates around its fi­nanc­ing quandary, while Quan­tum Prop­erty — now sans its flag­ship ho­tel as­set — has re­layed a num­ber of Sens an­nounce­ments con­cern­ing le­gal is­sues re­lat­ing to the liq­ui­da­tion of its main op­er­at­ing sub­sidiary.

Se­cu­rity group Com­mand Hold­ings did the same, but has now gone omi­nously quiet.

Oth­ers, like con­struc­tion group Erbacon, have ad­vised share­hold­ers that liq­ui­da­tion pro­ceed­ings are un­likely to yield any value.

The un­ac­cept­able op­tion is for com­pa­nies sim­ply to leave share­hold­ers com­pletely in the dark. Small cap com­pa­nies like Al­liance Min­ing, Coun­try Foods, Zap­tronix and Global Vil­lages (among many oth­ers) ap­peared to for­get its share­hold­ers af­ter the JSE sus­pended trad­ing in the re­spec­tive shares.

Con­sid­er­ing that some of these busi­nesses ap­peared to show a sem­blance of vi­a­bil­ity, the lack of de­tail to share­hold­ers is frus­trat­ing and a breach of good cor­po­rate gov­er­nance.

It’s easy to sug­gest that the JSE, as the mar­ket reg­u­la­tor, should do more.

But what ex­actly can be done? If any­thing, the JSE might learn a les­son from listed com­pa­nies placed in busi­ness res­cue.

Busi­ness res­cue prac­ti­tion­ers, though un­likely to be the bear­ers of en­cour­ag­ing news, have mostly kept share­hold­ers in trou­bled com­pa­nies abreast of ef­forts to re­store vi­a­bil­ity.

Could the JSE then look at a “cu­ra­tor­ship model” of com­pany sus­pen­sion im­me­di­ately trig­ger­ing the ap­point­ment of a “lead in­de­pen­dent di­rec­tor” to pro­tect the in­ter­ests of mi­nor­ity share­hold­ers?

This should not be a huge cost bur­den for the JSE to shoul­der, since there is a sur­feit of re­tired (and very ex­pe­ri­enced) ex­ec­u­tives who could be called on to ful­fil such a task.

Sus­pen­sion can of­fer dis­tressed com­pa­nies a very con­ve­nient es­cape clause


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