Should financially distressed ESKOM cease to trade?


Paul Hoffman | SC Director & Head of Projects | Institute for Accountability in Southern Africa (IFAISA) | |

State owned enterprise ESKOM is insolvent and illiquid such that its ability to meet operational costs and long-term debt obligations appears unlikely.

The Institute for Accountability in Southern Africa (Accountability Now) is questioning how ESKOM is to continue to trade in the present circumstances which would, in Accountability Now’s opinion, be contrary to section 22 of the Act on any reasonable interpretation.

Reckless trading

In effect, ESKOM is trading either recklessly or in a grossly negligent manner. Accountability Now has written a letter to the new CEO of Eskom, Mr Jabu Mabuza regarding its precarious financial position.

It appears that ESKOM is unable to sustain its operations from its own resources and is entirely reliant on state guaranteed funding. Eskom has become embroiled in ‘state capture’, lacks a professional and independent board and many of those at the helm seek to enrich themselves rather than serve in the public interest.

ESKOM is undoubtedly ‘financially distressed” as defined in section 128(1)(f) of the Act and is, or is about to become, both insolvent and illiquid. The ESKOM board of directors has, as yet, not passed a resolution, as it is permitted to do, to place ESKOM under voluntary business rescue.

Written notice

Section 129(7) of the Act provides that to the extent that ESKOM is ‘financially distressed’, as clearly appears to be the position and which the board of directors cannot on any reasonable basis deny, then ESKOM (through its board) must deliver written notice to each ‘affected person’ [as defined in section 128(1)(f) of the Act] setting out why:

  1. It appears that ESKOM is reasonably unlikely to be able to pay its debts as they become due;
  2. It appears likely that ESKOM will become insolvent in the next six months (as an alternative to (i) above); and
  3. ESKOM has not adopted a resolution to commence voluntary business rescue proceedings.

If the board of ESKOM is of the opinion that despite the evident financial distress, there is a reasonable prospect that ESKOM can be rescued, Accountability Now requests a detailed written explanation of the basis upon which the board reasonably holds such a belief.

In terms of section 22 of the Act, a company must not ‘…carry on its business recklessly, with gross negligence with the intent to defraud any person or for any fraudulent purpose.”

ESKOM’s continuing to trade in the current circumstances is unacceptable.