Framework for the Closure Process in respect of

Thubelisha Homes and Servcon Housing Solutions (PTY) Ltd

Presentation to: Portfolio Committee on Housing

20 May 2008

Outline

• Background• “Closure” in context• Closure Plan• Closure Implementation

– HR Workstream– Assets Disposal Workstream– Facilities and Infrastructure Workstream– Liabilities and Accounting

• Project Management• Dissolution and Deregistration• Closure Report

Background

• The NDoH is in the process of establishing the Housing Development Agency (HDA) to acquire, develop and release suitable land for housing development

• Rationalisation of Institutions also led to a decision to close Thubelisha and Servcon – whose original mandates have matured

• Support of specialist services is available

Background cont.

• The closure requirements necessitates that both entities:– Will cease business operations at some point– The power of directors will also cease– Deregistered and,– A report be provided on the winding up process including a final

Audit report from the company’s Auditors

• The closure process will deal with :– Disposal of assets and liabilities– Staff matters– Closure of bank accounts– Final Audit– CIPRO dissolution

“Closure” in context• Any company can be closed voluntarily by its shareholder(s)/

directors or in terms of its Articles and Memorandum – assuming it will settle its liabilities

• If there is a shortfall between assets and liabilities then the company would face forced liquidation unless alternative funding is available

• The closure of these companies (Thubelisha and Servcon) would be on a voluntary winding up basis.

• Voluntary closure can be accomplished by ceasing to trade/ operate, disposal of assets, settling liabilities and terminating all commitments including obligations to staff

• In a situation of a section 21 Company (Thubelisha), any surplus remaining after the closure will be processed in terms of the company’s statutes,

Closure Process

• The Closure process requires 3 main steps and a final report• Step 1 – Detailed Closure Plan

• Full details of assets, liabilities, affected staff and the detailed implementation steps required to close the company

• Step 2 – Closure Implementation• Implementation of the plan• Disposal of assets and settlement of liabilities• Redeployment of required staff and termination of others if required

• Step 3 – Final dissolution of the company– Deregistration of the company once all assets, liabilities and

commitments have been settled• Step 4 – Closure report

Closure Framework

Decision to Close

2 Months 3 to 6 months 1 month 1 month

Final Audit and legal

deregistration

Approval of Plan

All assets, liabilities and commitments disposed of

Step 1: Detailed Closure Plan

• Identification of all assets and liabilities and determination of how they are to be disposed of

• Collection of staff data and assessment of redeployment requirement, including definition of termination process

• Definition of all facilities, contracts, sundry assets and commitments that need to be dealt with

• Plan for the final accounting and auditing of the company, including all compliance processes required (Tax, VAT etc)

• Plan for final dissolution of the Company including the deregistration at CIPRO

Step 1:Detailed Closure Plan

• Key requirement for this phase include :– Clear and definitive mandate to close the company– Access to management and staff in head office & regions– Access to company auditors and financial record

• This Phase will produce– Detailed Plan with tasks, responsibilities and time frames– Risk assessment – Closure Budget including both closure costs and initial

assessment of any unmet liabilities• This phase can be completed in 2 months

Step 2: Closure Implementation

• The Closure Plan will be implemented through 4 workstreams– Human Resources Workstream– Assets Disposal Workstream– Facilities and Infrastructure Workstream– Liabilities and Accounting (includes legal)

• The four streams will be co-ordinated by intensive project management

HR Workstream

• The HR workstream will co-ordinate and facilitate the following :– Notification of impact of closure (Voluntary liquidation) in

terms of Section 189(3) of the Labour Relations Act– Definition of requirements for staff to be redeployed

elsewhere – Specification of selection criteria and competence

assessments as required– Final selection of redeployments and terminations– Calculation of retrenchment costs (where applicable)– Payout out of packages (where applicable)– Redeployment of selected staff

Assets Disposal Workstream

• The Closure plan will identify all assets of the company– What is to happen to each asset– Estimated value to be gained from disposal net of any

liabilities• Acceptance of the plan will constitute authority to dispose of

assets according to the plan• Transfer of the assets according to the plan by way of:

– Transfer to other similar state entities or– Sale to the market by auction or tender

• Any liabilities over the assets will need to be dealt with at the same time. The Finance Workstream will be involved in this aspect

Facilities and Infrastructure Workstream

• The existing offices and facilities of the company will need to be closed – Some facilities may be taken over (by the HAD or similar)– Others will be closed permanently and contracts / leases

will need to be terminated– Other contracts may also need to be terminated

• Telephones, data lines, internet etc• Copier and printer rentals• Cleaning, Security etc

• Sundry assets such as furniture and other equipment may need to be disposed of

Liabilities and Accounting

• The financial record of the company will be the starting point– Last audited financial statements– Management accounts and trail balance

• Advertisements in terms of the Liquidations Act will be placed to ensure that all liabilities and claims are identified

• Liabilities relating to specific assets will need to be settled on disposal of the assets

• All other liabilities will be settled as per the closure plan• The Finance team of the company will need to continue the

banking and accounting process right to the final dissolution• The companies auditors will be responsible for auditing

closure process and the final balances

Project Management

• The entire project needs to be co-ordinated with intensive project management and periodic reporting (2 weekly basis)

• A steering committee will be put in place to facilitate the decision making required to effect the closure– The steering committee: need to meet at least 2 weekly– Mandated to implement the approved closure plan– Steering Committee will be accountable through the

Board to the Department

Step 3 – Dissolution and Deregistration

• Only once the company’s activities have ceased and all assets, liabilities and commitments have been dealt with can final liquidation and deregistration be considered

• The final balances in the company would be audited and any surplus applied in terms of the company’s statute

• Final deregistration is a legal process to be undertaking by lawyers appointed for this purpose

Step 4 – Closure Report

• The closure report will contain all relevant details on the closure process– Closure plan– Final out come– Relevant documents and minutes of key meetings

• The report will present all cost incurred in the closure process and account for the disposal of all assets and settlement of all liabilities

• Any final actions or issues for the attention of the Department will also be highlighted

Final Considerations

• These are voluntary closure - the closure team will not have the executive authority of a liquidator. The mandate and executive support of the directors remains essential

• Early decisions on what is to be transferred where will be necessary. This includes clarity on what staff will be transferred/ retired

• The closure plan will calculate any shortfall that may need to be funded. Without commitment to funding this shortfall, a voluntary closure is impossible

• The timeframe is estimated to be a maximum of 6 months depending on complexity of asset disposal and availability of accurate information on assets and liabilities

Dissolution/ Delisting of Public Entities – Treasury Requirements & Checklist

1. Need Analysis (i.e. why is this necessary)2. Legislative regime for dissolution3. Risk analysis & matrices of dissolution4. Transfer of Functions or function ceases?5. Human Resource management6. CEO/ COO/ Top Management Severance packages or

expiry of contracts7. Financial plan (closure of budget line, bank account etc)8. Asset transfer plan (future location of assets)9. Transfer of liabilities10. Implementation plan for dissolution…11. Final Ministerial sign off for dissolution12. Documentation to NT for delisting (gazetting…?)

THANK YOU