Financial Mail - Investors Monthly
KEEPING INVESTORS INFORMED
Suspended firms should keep investors in the loop, writes Marc Hasenfuss
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