The government’s move to place the SA Post Office under business rescue is designed to buy the state-owned company some time from having to immediately pay back creditors and shield it from lawsuits from parties demanding payments running into billions of rands.

The SA Post Office is on track to be the fourth state-owned enterprise (SOE) to be placed under business rescue in nearly four years, as the struggling company attempts to avoid the worst-case scenario of having to permanently close its doors.

The Department Of Communications and Digital Technologies, which oversees the SA Post Office, has applied to the high court in Pretoria to have the SOE placed in a business rescue process, which would provide it with the breathing room to be saved from collapse.

If the court application, to be heard on 4 July, is successful, the Post Office will follow in the footsteps of SOEs including SAA, Mango Airlines and SA Express.

SAA was placed under business rescue in December 2019 and emerged from the process in April 2021. The airline has resumed flights as a smaller entity. Mango Airlines is still under business rescue while SA Express’ process has failed and the airline has shut down ahead of liquidation.

The government’s move to place the SA Post Office under business rescue is designed to buy the SOE some time from having to immediately pay back creditors and shield it from lawsuits from parties that have demanded payments.

As of 31 March 2023, the Post Office owed creditors R5-billion. It cannot afford to pay this back as the SOE has been on a money-losing streak for 16 years.

Business rescue, which is provided for by the Companies Act, is an attempt to rehabilitate financially distressed companies by restructuring their affairs. The objective is to enable a company to continue operating while being restructured, temporarily suspending payments to creditors and saving some jobs in the process.

The SA Post Office has already been placed under provisional liquidation by its creditor, who has successfully secured a court order. Two real estate companies, which lease premises to the Post Office, successfully secured court orders to have the SOE provisionally liquidated.

A provisional liquidation portends a process of winding up the SA Post Office, which involves selling its assets. The proceeds from this sale would be used to pay liquidation expenses and the SOE’s creditors.

On 28 March 2023, a real estate company called Withinshaw Properties was granted a provisional liquidation order by the high court in Pretoria against the Post Office for rental payments due on its premises in Wynberg, Cape Town.

And on 9 February 2023, the high court granted a provisional liquidation order to another real estate company called Bay City Trading 457, also for rental payments owed by the Post Office.

In both cases, the high court placed the Post Office under provisional and not final liquidation because it wants all affected parties to return to court and put forward their reasons why the court should not order the final liquidation of the SOE.

In the Withinshaw Properties provisional liquidation order, parties are set to return to court on 6 July to argue against a final liquidation order, while the matter involving Bay City Trading 457 was heard on 1 June. During this hearing, the Department Of Communications and Digital Technologies told the court it believes business rescue would be the best remedy for the SA Post Office.

The department told the court that the government cannot allow the Post Office to collapse because it offers “crucial” services, including distributing social grants to more than 7 million beneficiaries every month.

The department’s minister, Mondli Gungubele, believes that the National Treasury bailout of R2.4-billion given to the Post Office in the February budget might solve some of the SOE’s problems. And placing the Post Office under final liquidation might jeopardise this government bailout, spelling disaster for the SOE.

Gungubele urged the court not to make any “precipitous decisions” that might lead to the Post Office permanently closing its doors.

In weighing up its decision on whether to place the Post Office under business rescue or final liquidation, the courts have to consider whether the SOE has reasonable prospects of success.

The Post Office made a loss of R2.1-billion for the 12 months ending 31 March 2023. The SOE has been recording losses for 16 consecutive years.

The Post Office owes the SA Revenue Service R539-million for taxes relating to salary payments; R1.1-billion is due to the Post Office Retirement Fund; R596-million is owed to Medipos (a medical aid scheme for workers) and R108-million to the Unemployment Insurance Fund.

The Post Office deducts the salaries of its more than 10,000 workers for medical aid, SA Revenue Service income tax, retirement funds and UIF contributions, but fails to hand over these statutory payments to the relevant institutions.

With such a dire financial picture, some analysts believe that not even a business rescue process can save the SA Post Office.