Square One and Faritec shareholders are stuck with stock they cannot trade and are unlikely to be told what is going on with the companies' financial positions any time soon, due to a grey area in the law.
Both companies are in the liquidation process - which makes the liquidators responsible for publishing results. Yet shareholders won't have any luck forcing the liquidators to release financial figures.
In addition, the Johannesburg bourse cannot force the companies to shed any light on their financial situation, as it no longer has any power over the directors.
Both Square One and Faritec asked the JSE to suspend trade in their shares last year, and neither company has published any results for almost 12 months. JSE rules require companies to report their financials, even if their shares are suspended, within three months after the end of each financial period.
Square One suspended its shares when it filed for liquidation in May. Its year-end is in December, but its last set of full-year numbers - or any other set of results - came out on 6 May last year.
Faritec suspended its shares in April, after ITWeb revealed it was selling off business units without telling shareholders, and then put its biggest money-spinner - Faritec Enterprise Solutions - under liquidation in May.
The company's last set of results - of any kind - was published last March, when it released its results for the half-year to December. Faritec's year-end was in June, and it should have published results within three months, and an annual report within six months.
Hands tied
Andre Visser, the JSE's GM of Issuer Services, says companies whose shares have been suspended must still comply with the bourse's listings requirements, which includes publishing results.
In addition, says Visser, companies whose shares are suspended must also let shareholders know, on a quarterly basis, what its current state of affairs is, and what action it is taking to have its shares reinstated.
“However, when a company is suspended as a result of it being placed in liquidation, things, unfortunately, work differently,” says Visser. He explains the bourse makes “every effort to obtain information from the liquidators”, but they are “generally not very forthcoming”.
This, says Visser, is because liquidators are focusing on their responsibilities in terms of the Companies Act. He explains once a company is in liquidation, the JSE no longer has any jurisdiction over directors, as their power is extinguished.
“We certainly are concerned about the interest of shareholders, but once a liquidator is appointed they, together with the courts, have ultimate responsibility regarding the affairs of the company,” says Visser.
Faritec's liquidator, Antrust, did not respond to a request for comment, and Square One's liquidator, Dawie van der Merwe, from Independent Trustees, had “other commitments” and didn't respond.
Caught out
Garth Coppin, national director of accounting at Ernst & Young, says shareholders are stuck between a rock and a hard place when companies go into liquidation, because of a grey area in the law.
Coppin explains that the Companies Act requires firms to publish financial results, even if they are in liquidation. Yet, when a group goes into liquidation, there is no one to take responsibility for the numbers, and no one to hold accountable.
He explains that it is the directors' responsibility to prepare statements, but if a company is being liquidated, the directors have no power. In addition, liquidators are unlikely to prepare financial statements for a period when the company was not under their control.
When companies go into liquidation, there is no cash to pay auditors, so firms cannot publish audited results. In addition, financial statements are usually prepared on the basis that companies are going concerns, says Coppin, which is not the case when they are in liquidation.
As a result, says Coppin, companies being liquidated do not generally prepare financial statements.
Some hope
Coppin says if the liquidators manage to recoup enough money from the liquidated entity to pay creditors, shareholders could receive some form of payout.
In the meantime, shareholders are stuck with stock they cannot sell, which is worthless, he says. “Shareholders would typically at that point write off their investments, and that could be a substantial amount.”
In addition, if the liquidators find directors were running a company negligently, they can hold them accountable for damages in terms of the Companies Act, says Coppin. However, just because a company has been liquidated does not mean the directors were negligent, he adds.
Minority shareholders can also take some solace in the fact that, if former directors have a large chunk of shares, they can't sell these either, he notes.
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