Financial Mail - - FEATURE - David Fur­longer fur­

For the first time in nearly a quar­ter of a cen­tury, there will be no joy­ful scenes at dozens of ru­ral pri­mary schools later this year as spon­sors de­liver ed­u­ca­tion and hope to grate­ful chil­dren, par­ents, teach­ers and com­mu­ni­ties.

This is the 23rd year of Rally to Read, the ru­ral ed­u­ca­tion pro­gramme that has trans­formed the lives of thou­sands of chil­dren oth­er­wise con­demned to il­lit­er­acy and poverty by a failed SA ed­u­ca­tion sys­tem. Thanks to Covid-19, how­ever, there can be no min­gling or cre­ation of friend­ships and com­mon pur­pose across one of SA’S great­est so­cial di­vides.

The city haves and ru­ral have-nots will be kept apart in 2020, for the first time since 1997. But that doesn’t mean the need for spon­sor­ship is any less des­per­ate. We still rely on the gen­eros­ity of FM read­ers, who have sup­ported this pro­gramme since its in­cep­tion. Sus­pend­ing it is not an op­tion.

Rally to Read, for which the FM is an or­gan­is­ing part­ner, be­gan its jour­ney in 1998, in re­sponse to the re­al­i­sa­tion that ba­sic ed­u­ca­tion was not reach­ing many of the coun­try’s most re­mote com­mu­ni­ties. Ba­sic ed­u­ca­tional ma­te­ri­als, such as books and sta­tionery, were sim­ply not be­ing de­liv­ered. School build­ings, many with­out elec­tric­ity or run­ning wa­ter, were left to crumble. Teach­ers, lack­ing tools, were de­mo­ti­vated and of­ten ab­sent. When the av­er­age ru­ral child was ex­pected to en­ter high school at the age of 14, he or she had a read­ing age of seven.

The sit­u­a­tion in 2020 is bet­ter, but not by much. How­ever, Rally to Read schools are an ex­cep­tion. There, the literacy gap is bridged and chil­dren are able to en­joy a full ed­u­ca­tion and the life op­por­tu­ni­ties that brings. Many have gone on to univer­sity. In some cases, they have been the first ever to do so from their com­mu­ni­ties.

The for­mula for this suc­cess is sim­ple: we de­liver what we prom­ise. Spon­sors’ money buys por­ta­ble class­room li­braries and sta­tionery, and pays for teacher de­vel­op­ment.

Train­ers from the Read Ed­u­ca­tional Trust con­tin­u­ously mon­i­tor ed­u­ca­tional progress dur­ing the three years we sup­port each school.

But spon­sors don’t have to take the or­gan­is­ers’ word for the fact that the pro­gramme works. What makes Rally to Read unique is that spon­sors de­liver goods in per­son, meet the chil­dren and com­mu­ni­ties they are help­ing and un­der­stand the needs they are meet­ing. Reg­u­lar spon­sors see for them­selves the de­vel­op­ment of chil­dren at “their” schools dur­ing of­froad adventure week­ends.

The per­sonal touch of Rally to Read may be miss­ing in 2020, but ru­ral schools can’t af­ford to lose spon­sor sup­port

To stop now, be­fore the three­year cy­cle is com­plete, would risk un­do­ing ev­ery­thing al­ready achieved

This per­sonal in­ter­ac­tion, of course, is im­pos­si­ble in 2020 — though we did man­age our tra­di­tional Mpumalanga rally in March, just be­fore the Covid-19 lock­down was im­posed. But we are still com­mit­ted to con­tin­u­ing ex­ist­ing in­ter­ven­tions in the West­ern Cape, Eastern Cape, Free State and Kwazulu-natal. To stop now, be­fore the three­year cy­cle is com­plete, would risk un­do­ing ev­ery­thing al­ready achieved. Equally, to post­pone for a year would be dev­as­tat­ing for chil­dren in the pro­gramme.

Pre­dictably, the eco­nomic chaos caused by the Covid-19 pan­demic has caused many com­pa­nies to re­con­sider their so­cial in­vest­ment pro­grammes and pri­ori­tise the wel­fare of their own staff over that of name­less, face­less strangers.

Ex­cept, of course, that Rally to Read’s chil­dren are not name­less, face­less or even strangers. Our spon­sors have met them and seen them grow. Un­til life re­turns to nor­mal, or­gan­is­ers will try to pre­serve some of that relationsh­ip through “vir­tual” school tours and con­ver­sa­tions.

The cost of a full spon­sor­ship in 2019 was R36,000 — enough to equip and sup­port a pri­mary school for one year. We hope that de­spite the lack of per­sonal participat­ion, spon­sors can still find that money in 2020. If not, any lesser amount will still be wel­comed.

SA faces un­prece­dented chal­lenges be­cause of Covid-19. For most com­pa­nies, re­cov­ery will be slow, but it will hap­pen. In ur­ban schools, we are al­ready see­ing a re­turn to class­rooms. Ru­ral ed­u­ca­tion, how­ever, can’t be switched on and off like a tap, so we need the funds to keep it flow­ing — or at least trick­ling.

If not, a gen­er­a­tion of chil­dren will lose their only chance of a fu­ture that should be theirs by right.

To learn more about the pro­gramme, or to be­come a

spon­sor, visit ral­ly­

for any fraud­u­lent pur­pose”.

Any di­rec­tor or man­ager who breaches this can be held li­able for any loss, dam­age or costs sus­tained by the com­pany

But this li­a­bil­ity ex­tends fur­ther. If a com­pany goes into liq­ui­da­tion, di­rec­tors also face per­sonal li­a­bil­ity should it be found that it was trad­ing reck­lessly be­fore it was liq­ui­dated. And this is a strict li­a­bil­ity, in that there needn’t be any di­rect link be­tween the reck­less trad­ing and the loss.

As many com­pa­nies bat­tle to keep their heads above wa­ter in the pan­demic, it’s crit­i­cal that di­rec­tor and man­agers learn ex­actly what con­sti­tutes reck­less trad­ing. Help­fully, a num­ber of cases have pinned it down for us.

In Fourie v New­ton, a 2010 case which re­volved around di­rec­tors’ re­spon­si­bil­i­ties in the col­lapse of newsagent CNA, the court re­stated the prin­ci­ples of reck­less trad­ing. It is this:

● Gross neg­li­gence is nec­es­sary, rather than just mere neg­li­gence;

● An hon­est but mis­taken view that a com­pany wasn’t trad­ing reck­lessly won’t negate li­a­bil­ity, if a rea­son­able per­son wouldn’t have had that view;

● Act­ing reck­lessly con­sists of a fail­ure to give con­sid­er­a­tion to the con­se­quences of your ac­tions.

In the Philo­tex case, dat­ing back to 1997, the di­rec­tors of a com­pany called Wol­nit were held to be reck­less where they car­ried on trad­ing with­out the as­sur­ance of sup­port from their par­ent com­pany, the Rent­meester Group.

Di­rec­tors can also be held per­son­ally li­able if they take out credit for the com­pany with­out a rea­son­able ex­pec­ta­tion it will be able to re­pay that loan.

With credit, there’s an­other crit­i­cal point. Nor­mally, di­rec­tors owe a fidu­ciary duty of care, skill, and dili­gence to share­hold­ers. But when it comes to fi­nan­cially dis­tressed com­pa­nies, they owe that duty to their cred­i­tors too.

Dur­ing Covid-19, we’ve seen many com­pa­nies sus­pend their div­i­dend. Legally, this is a wise move, partly be­cause of the way the Com­pa­nies Act obliges com­pa­nies to ap­ply the twin test of sol­vency and liq­uid­ity.

Th­ese tests must be ap­plied when a com­pany plans cer­tain cor­po­rate trans­ac­tions in­clud­ing, im­por­tantly, div­i­dend pay­ments and other dis­tri­bu­tions.

Here, di­rec­tors must ex­er­cise their judg­ment in as­sess­ing whether their com­pany will be sol­vent and liq­uid im­me­di­ately af­ter mak­ing the pay­ment. The stan­dard of care is both sub­jec­tive and ob­jec­tive: would a rea­son­able per­son have thought the com­pany would pass this twin test? Get it wrong, and you face per­sonal li­a­bil­ity un­der the Com­pa­nies Act.

Boards must also be vig­i­lant to en­sure that covenants in loan con­tracts aren’t breached, and that there isn’t a de­fault due to a com­pany not meet­ing the re­quire­ment of be­ing a go­ing con­cern.

If all that sounds tricky enough, con­sider that if you’re the di­rec­tor of a Jse-listed com­pany, you also have a duty to make a prompt dis­clo­sure of any cir­cum­stance that could be seen as “price sen­si­tive”, like a liq­uid­ity short­age.

Dis­clo­sure, in fact, is vi­tal.

Un­der sec­tion 129 of the Com­pa­nies Act, di­rec­tors who be­lieve a com­pany is in fi­nan­cial dis­tress but have not placed the com­pany in busi­ness res­cue must in­form those af­fected — in­clud­ing share­hold­ers, cred­i­tors and em­ploy­ees. And here, the in­ter­pre­ta­tion is com­plex.

It’s quite clear there are many mine­fields around reck­less trad­ing which di­rec­tors have to avoid. As Covid-19 rav­ages our cor­po­rate sec­tor, you can ex­pect many of th­ese pro­vi­sions to be aired in court in the next few months.

Katz is chair of En­safrica

It’s quite clear there are many mine­fields around reck­less trad­ing which di­rec­tors have to avoid

Mak­ing a dif­fer­ence: In its 23 years of ex­is­tence, Rally to Read has trans­formed the lives of chil­dren across SA Paul Wein­berg

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