business rescue plan · 2020-07-06 · mediation and arbitration. it is a dispute resolution body...

BUSINESS RESCUE PLAN

in respect of

Electro Inductive Industries Proprietary Limited (“EII”)

(Registration Number 1999/019752/07)

(Issued on 30 June 2020)

TABLE OF CONTENTS

1. IMPORTANT NOTICE AND ACTION TO BE TAKEN 4

2. INTERPRETATION AND PRELIMINARY 4

3. STRUCTURE OF THE BUSINESS RESCUE PLAN 18

4. CORPORATE INFORMATION 19

5. COMPANY BACKGROUND 21

6. STEPS TAKEN SINCE THE APPOINTMENT OF THE BR PRACTITIONER 30

7. TAX AFFAIRS 31

8. DISPUTED CLAIMS AND CONTINGENT CLAIMS 31

9. TRADING FOLLOWING BR COMMENCEMENT DATE 33

10. MATERIAL ASSETS. 37

11. CREDITORS VOTING INTEREST 39

12. FEE AGREEMENT 40

13. PROPOSAL MADE INFORMALLY BY A CREDITOR 40

14. OBLIGATION TO INVESTIGATE THE AFFAIRS OF THE COMPANY IN TERMS

OF SECTION 141 OF THE ACT 41

15. VOTING BY PROXY 42

16. GENERAL PURPOSE AND OBJECTIVE OF BUSINESS RESCUE 43

17. CLAIM SETTLEMENT PROPOSAL 44

18. PROOF OF CLAIMS AND TIMELINE FOR DISTRIBUTING ON TO CREDITORS

49

19. ORDER OF DISTRIBUTION – PAYMENT WATERFALL 49

20. MORATORIUM 50

21. EFFECT ON CREDITORS 51

22. EFFECT OF THE BR PLAN ON HOLDERS OF THE COMPANY’S ISSUED

SECURITIES 52

23. EFFECT OF THE BUSINESS RESCUE PLAN ON EMPLOYEES 52

24. BENEFITS OF ADOPTING THE BUSINESS RESCUE PLAN COMPARED TO

LIQUIDATION 52

25. RISKS OF THE BUSINESS RESCUE PLAN 54

26. EFFECT OF THE BUSINESS RESCUE PLAN ON EMPLOYEES 56

27. TERMINATION OF BUSINESS RESCUE 56

28. SUBSTANTIAL IMPLEMENTATION 56

29. PROJECTED BALANCE SHEET AND PROJECTED STATEMENT OF INCOME

AND EXPENSES 56

30. DISPUTE RESOLUTION 57

31. DISCHARGE OF DEBT AND CLAIMS 59

32. EFFECT ON CLAIMS 59

33. ABILITY TO AMEND THE BUSINESS RESCUE PLAN 60

34. SEVERABILITY 60

35. CONCLUSION 60

36. BRP’S CERTIFICATE 61

ANNEXURES TO THE BR PLAN

Annexure A – BR Commencement Date Creditors

Annexure B – Probable Liquidation Dividend at Publication Date

Annexure C – Probable BR Dividend

Annexure D - Fixed Asset Valuation

Annexure E – BR Practitioner Remuneration Agreement

Annexure F – Actom Offer

Annexure G – ContiPower Offer

Annexure H – Revive Offer

1. IMPORTANT NOTICE AND ACTION TO BE TAKEN

1.1 This document is important and is being sent to all known Affected

Persons of Electro Inductive Industries Proprietary Limited in

accordance with the provisions of the Companies Act 71 of 2008 (“the

Act”).

1.2 The document contains the Business Rescue Plan, prepared in

accordance with the requirements of Chapter 6 of the Act, in particular

Section 150(2) of the Act.

1.3 Your rights as a Creditor of the Company will be affected in the

manner outlined herein and you are entitled to be present or

represented, and vote, at a meeting of creditors to be convened in

terms of Section 151 of the Act, for the purposes of considering the

Business Rescue Plan.

1.4 If any Affected Person is in doubt as to what action should be taken

arising from the contents of this Business Rescue Plan, such Affected

Person or Affected Persons are advised to consult an independent

attorney, accountant or other professional advisor in addition to any

consultation with or direction received from the Business Rescue

Practitioner.

2. INTERPRETATION AND PRELIMINARY

The headings of the paragraphs in this Business Rescue Plan are for

the purpose of convenience and reference only and shall not be used

in the interpretation of nor modify nor amplify the terms of this plan

nor any paragraph hereof. Unless a contrary intention clearly

appears:

2.1 words importing:

2.1.1 any one gender includes the other gender;

2.1.2 the singular includes the plural and vice versa; and

2.1.3 persons include natural persons, created entities (corporate and un

incorporate and the State) and vice versa.

2.2 In this plan, the following words shall have the meanings ascribed to

them and cognate expressions shall have a similar meaning:

“Acquittance” means a document executed by a Creditor in

terms of which that Creditor notifies the BR

Practitioner that it will not, to the extent of

the amount stated in that document, look to

the Company for any distribution or other

benefit under this Agreement;

“Act” means the Companies Act 71 of 2008 (as

amended);

“Actom” means Actom Proprietary Limited with

registration number 2008/001863/07,

incorporated as a private company in

accordance with the laws of South Africa;

“Affected Persons”

shall bear the meaning ascribed thereto in

Section 128(1)(a) of the Act and in relation

to the Company means shareholders,

creditors and employees of the Company;

“AFS” means annual financial statements;

“Alloy Magnetic Cores” means Alloy Magnetic Cores Proprietary

Limited with registration number

2017/125554/07, incorporated as a private

company in accordance with the laws of

South Africa;

“BIP” means the Black Industrialist Programme of

the Department of Trade and Industry;

“BR” means the business rescue proceedings in

respect of the Company set out in Chapter 6

of the Act, commencing and terminating in

accordance with section 132 of the Act;

“BR Adoption Date” means the date on which this plan is finally

adopted in accordance with section 152 of

the Act;

“BR Claims” means the secured, statutory, preferent or

concurrent claims of creditors of the

Company at the BR Commencement Date,

the cause of action in respect of which arose

prior to or on the BR Commencement Date,

including claims, actual and contingent,

prospective, conditional and unconditional,

liquidated or unliquidated, assessed or

unassessed, whether or not due for payment

or performance, including for the avoidance

of any doubt all claims arising out of any

agreements entered into by the Company

prior to the BR Commencement Date, all

such claims to be determined, calculated and

admitted as secured, statutory preferent or

concurrent in accordance with the same

ranking as envisaged by the Insolvency Act,

and attached to them upon the issue of a

winding-up order against the Company,

whether or not such claims are proved;

“BR Commencement

Date”

means 3 September 2019, being the date on

which the BR commenced in terms of section

132 (1)(b) of the Act;

“BR Commencement

Date Creditors”

means creditors with BR Claims against the

Company as at the BR Commencement Date,

and which BR Claims are accepted by the BR

Practitioner as valid and enforceable against

the Company as at the BR Commencement

Date, as listed in Annexure A, including

Disputed Creditors;

“BR Plan” means this document together with all its

annexures, prepared and published by the

BR Practitioner for consideration and

possible adoption by Creditors in accordance

with Part D of Chapter 6 of the Act;

“BR Practitioner” or

“BRP”

means Sipho Sono appointed by the

Company in accordance with the provisions

of section 129 (3)(b);

“Business Day”

means any day which is not a Saturday,

Sunday or public holiday in the Republic of

South Africa;

“Cape Steel Core” means Cape Steel Core Proprietary Limited

with registration number 2012/159111/07,



“CCMA” means the Commission for Conciliation,

Mediation and Arbitration. It is a dispute

resolution body established in terms of the

Labour Relations Act, 66 of 1995;

“CIPC” means the Companies and Intellectual

Property Commission of South Africa,

established by section 185 of the Act;

“the Company” or

“EII”

means Electro Inductive Industries

Proprietary Limited with registration number



South Africa, herein duly represented by the

BR Practitioner;

“CONCO” means Consolidated Power Projects




South Africa;

“Contingent Claims” means, as the context may require, a

Creditor whose claim may or may not

become due and payable during the BR

depending on the happening of a future

event or determination of the claim;

“ContiPower” means Continental Power Supplies Africa




South Africa;

“Creditors”

means, collectively, BR Commencement

Date Creditors and Post-BR Commencement

Creditors;

“Disputed Creditors” means those Creditors whose BR Claims are

disputed by the Company and/or the BRP;

“DTI” means the Department of Trade and

Industry of the South African Government;

“Eisomark” means Eisomark (Pty) Ltd, with registration

number 2015/083717/07, a company duly

registered and incorporated under the laws

of South Africa and owned by a group of

trusts. Eisomark holds 51% of EII shares;

“Employees” means all employees of the Company that

were in its employ as at the BR

Commencement Date, and who will be in its

employ as at the Implementation Date;

“FY” means financial year ending 28 February;

"Final Claims Date" means the final date for the filing of Pre-BR

Commencement Claims, being 60 days from

the BR Adoption Date;

“IDC” means the Industrial Development

Corporation SOC Limited with registration

number 1940/014201/31 established in

1940 as a national development finance

institution set up to promote economic

growth and industrial development;

“Implementation

Date”

means the date on which the BR Practitioner

files a notice with the CIPC of the substantial

implementation of this Plan as set out in

section 152 (8) of the Act;

“Insolvency Act” means the Insolvency Act 24 of 1936 (as

amended);

“Landlord” means Mergence Africa Property Investment

Trust, conducting business in the property

investment market;

“LogiDist Means LogiDist Group Holdings Proprietary

Limited, incorporated as a private company

in accordance with the laws of South Africa

“LRA” means the Labour Relations Act, Act 66 of

1995 which aims to promote economic

development, social justice, labour peace

and democracy in the workplace.

“MCM Electro” means MCM Elctro Steel Proprietary Limited

with registration number 2013/197164/07,



“Mitre Core

Technologies”

means Mitre Core Technologies SA

Proprietary Limited with registration

number 2017/167597/07, incorporated as a

private company in accordance with the

laws of South Africa;

“Month” means –

in reference to a number of months, from

a specific date, a period commencing on

that date to the immediately preceding

day on the same date of any subsequent

month; and

in any other context, a month of the

calendar, that is, one of the 12 months of

the calendar,

and "Months" and "Monthly" has a

corresponding meaning;

“Moratorium” means the automatic and general

moratorium in terms of Section 133(1) of the

Act on legal proceedings or executions

against the Company, its property and its

assets and on the exercise of the rights of

Creditors of the Company whilst the

Company is under BR;

“Nega” means Nega Gebreyesus, an Ethiopian

business man that is involved in setting up a

transformer manufacturing factory in

Ethiopia;

“NIPP” means the National Industrial Participation

Programme which is a programme that

seeks to leverage economic benefits and

support the development of South African

industry by effectively utilizing the

instrument of government procurement;

“NPA” means the National Prosecuting Authority, a

government agency with the power to

institute criminal proceedings on behalf of

the State and to carry out any necessary

functions incidental to instituting criminal

proceedings;

“PCF” means post commencement finance;

“Post-BR

Commencement

Claims”

means the secured, statutory preferent or

unsecured claims of creditors of the

Company, the cause of action in respect of

which arose after the BR Commencement

Date, including claims, actual and

contingent, prospective, conditional and

unconditional, liquidated or unliquidated,

assessed or unassessed, whether or not due

for payment or performance, including for

the avoidance of any doubt all claims arising

out of any agreements entered into by the

Company after the BR Commencement Date,

all such claims to be determined, calculated

and admitted as secured, statutory preferent

or unsecured in accordance with the same

ranking as envisaged by the Insolvency Act,

and attached to them upon the issue of a

winding-up order against the Company,

whether or not such claims are proved;

“Post-BR

Commencement

Creditors”

means creditors of the Company with Post-

BR Commencement Claims which lodged

Post-BR Commencement Claims against the

Company in writing during the Post-BR

Commencement Period with the BR

Practitioner in accordance with the Act, and

which Claims are accepted in writing by the

BR Practitioner as valid and enforceable

against the Company;

“Post-BR

Commencement

Period”

means the period from the day immediately

succeeding the BR Commencement Date up

to and including the Implementation Date;

“PPE” means property, plant and equipment

“Preferent Creditor” means, as the context may require, a BR-

Commencement Date Creditor or a Post-BR

Commencement Creditor whose BR Claim or

Post-BR Commencement Claim respectively,

would rank in whole or in part as a statutory

preferent claim in insolvency proceedings or

a winding-up in terms of the Insolvency Act;

“Revive” means Revive Electrical Transformers




South Africa;

“SARS” means the South African Revenue Services;

“SBSA or Standard

Bank”

Means the Standard Bank of South Africa


M2005/034639/21, a registered bank

licensed by The South African Reserve Bank,

incorporated according to the laws of South

Africa;

“Secured Creditors” means, as the context may require, a BR-

Commencement Date Creditor or a Post-BR

Commencement Creditor whose BR Claim or

Post-BR Commencement Claim respectively

would rank in whole or in part as a secured

claim as defined in section 2 of the

Insolvency Act;

“SGBS” means SGB-Smit Power Matla Proprietary




South Africa;

“Shareholders” means the shareholders of the Company at

the BR Commencement Date as listed by

name and percentage of Shares held in the

Company;

“Shares” means the entire issued share capital of the

Company;

“Siemens” Means Siemens (Pty) Ltd a company duly


of South Africa and having its registered

office at 300 Janadel Avenue, Halfway House

1685, South Africa

“TERS” means a training scheme of the CCMA known

as Temporary employer/employee Relief

Scheme, previously known as the Employee

Layoff Scheme

“TPS 01 CC” means TPS 01 CC with registration number

2001/064422/23, incorporated as a closed

corporation in accordance with the laws of

South Africa;

“Tractionel” Tension Overhead Electrification (Pty) Ltd,

T/A Tractionel Enterprises, with registration

number 1982/010497/07, a company duly


of South Africa;

“UIF” means the Unemployment Insurance Fund

of South Africa administered by the

Department of Labour;

“Unsecured Creditors” means a BR Commencement Date Creditor

or a Post-BR Commencement Creditor, as

the context may require, which is not a

Secured Creditor or Preferent Creditor;

“VAT” means value-added tax in terms of the

Value-Added Tax Act 89 of 1991;

“VSP” means a Voluntary Separation Package.

2.3 Any reference to:

2.3.1 a “paragraph” shall, subject to any contrary indication, be construed

as a reference to a paragraph in this plan;

2.3.2 “law” shall be construed as any law (including common or customary

law), or statute, constitution, degree, judgment, treaty, regulation,

directive by-law, order or any other legislative measure of any

government, supranational, local government, statutory or regulatory

body or court;

2.3.3 a “person” shall be construed as a reference to any person, firm,

company, corporation, government, state or agency of a state or any

association or partnership (whether or not having separate legal

personality, of two or more of the aforegoing).

2.4 If any provision in a definition is a substantive provision conferring

rights or imposing obligations on any party, notwithstanding that it is

only in the definition paragraph, effect shall be given to it as if it were

a substantive provision of this BR Plan.

2.5 Unless the context dictates otherwise, an expression which denotes

any gender includes both the others; and to a natural person includes

an artificial person and to the singular includes the plural, and vice

versa in each case.

2.6 The annexures to this BR Plan form an integral part hereof and words

and expressions defined in this plan shall bear, unless the context

otherwise requires, the same meaning in such annexures.

2.7 When any number of days is prescribed in this BR Plan same shall be

reckoned exclusively of the first and inclusively of the last day unless

the last day falls on a day which is not a Business Day, in which the

last day shall be the next succeeding Business Day.

2.8 In the event that the day for payment of any amount due in terms of

this arrangement shall fall on a day that is not a Business Day, the

relevant date shall be the immediately succeeding Business Day.

2.9 Where any term is defined within the context of any particular

paragraph in this BR Plan, the term so defined, unless it is clear from

the paragraph in question that the term so defined has limited

application to the relevant paragraph, shall bear the same meaning

as ascribed to it for all purposes in terms of this Plan, notwithstanding

that the term has not been defined in the definitions paragraph.

2.10 Any reference in this BR Plan to an enactment is reference to that

enactment as at the BR Commencement Date and as amended or re-

enacted from time to time.

2.11 Words and expressions defined in the Act which are not defined in this

Plan shall have the same meanings in this Plan as those ascribed to

them in the Act.

2.12 Save where the contrary is indicated, any reference to this BR Plan

shall be construed as a reference to this BR Plan as it may have been,

or may from time to time be, amended, varied, novated or

supplemented in terms of the Act.

2.13 Whilst every effort has been made to present an accurate and

complete overview of the affairs of the Company the BR Practitioner

has not independently verified all of the information contained herein.

None of the BR Practitioner, the Company nor their respective

affiliates, employees, officers, directors or agents make any

representations or warranties (express or implied) as to the accuracy

or completeness of the information contained in this BR Plan or any

statements, estimates or projections contained herein. Consequently,

none of those parties will have any liability for the recipient’s use of

the information contained herein. This BR Plan will include certain

statements, estimates and projections.

3. STRUCTURE OF THE BUSINESS RESCUE PLAN

For the purposes of section 150(2) of the Act, this BR Plan is divided

as follows:

3.1 PART A - BACKGROUND

This part sets out the background to the Company and the factors

that resulted in the Company being financially distressed and being

placed under supervision and in business rescue.

3.2 PART B - TERMS OF THE BUSINESS RESCUE PLAN

This part describes the terms of the BR Plan and includes, inter alia,

the benefits, for Affected Persons, of adopting the BR Plan as opposed

to the Company being placed into liquidation.

3.3 PART C – ASSUMPTIONS AND CONDITIONS

This part sets out, inter alia, what conditions need to be fulfilled in

order for the BR Plan to become effective, and to be implemented.

PART A – BACKGROUND

4. CORPORATE INFORMATION

4.1 SHARE CAPITAL OF THE COMPANY

4.1.1 The authorised share capital of the Company comprises of:

4.1.1.1 200,000 Class A Ordinary Shares; and

4.1.1.2 100 Class B Cumulative Redeemable Preference Shares

4.1.2 The issued share capital of the Company comprises of:

4.1.2.1 100,000 Class A Ordinary Shares; and

4.1.2.2 1 Class B Cumulative Redeemable Preference Share

4.1.3 The Eisomark holds 51 000 of the Class A shares while the IDC holds

the balance of 49 000 Class A shares.

4.1.4 The IDC holds the 1 issued Class B share.

4.2 DIRECTORS, OFFICE BEARERS, AND MATERIAL THIRD PARTIES

4.2.1 As at the Publication Date, the Directors of the Company were:

Name of Director

Designation

Active/

Resigned

Date

Appointed/

Resigned

SYDNEY DAVID MABALAYO Non-executive Active 27/05/2014

ABDURAGHIEM BRANDT Executive Active 03/02/2014

MODISE ANDREW MATLALA Non-executive Active 04/12/2017

MOTHOGOBENG ZANDILE FUYANE Non-executive Active 07/04/2016

SELIKANE LEBOHANG MAKAPE Non-executive Active 07/04/2016

PETER RANTHO KGAME Non-executive Active 23/03/2015

NEVEN GRADON HENDRICKS Non-executive Active 26/10/2012

4.2.2 Financial year end: 28 February

4.2.3 Registered address: 29 Range Road

Blackheath, Cape Town, 7580

4.2.4 Business address: 29 Range Road Blackheath

Cape Town, 7580 4.2.5 Postal Address: P.O. Box 1454

Brackenfell Cape Town, 7561

4.2.6 Auditors BDO

6th Floor BDO House

119 Hertzog Boulevard Foreshore, 8001

5. COMPANY BACKGROUND

5.1 HISTORY, STATE OF AFFAIRS AND PROSPECTS OF THE COMPANY

5.1.1 EII was established in 1999 and has become an important player in

the transformer industry of South Africa, renowned for its quality and

short delivery time lines.

5.1.2 It is a Cape Town based manufacturer and distributor of SABS

approved distribution transformers and miniature substations. EII

manufactures class 0 transformers (16 to 1250 kVA). It also had a

small miniature substation (“mini-sub”) assembly facility in

Johannesburg which was subsequently closed down on 29 February

2020.

5.1.3 EII’s customers are predominantly based in South Africa and include

Eskom and the municipalities, who jointly account for approximately

80% of the transformer demand in South Africa.

5.1.4 EII is a key player in the distribution transformer industry

manufacturing SABS approved distribution and mini-subs. EII has a

wealth of experience with skills and expertise from the design

engineers to the technicians and artisans who manufacture and test

the transformers.

5.1.5 EII currently manufactures class 0 transformers but has the capacity

and experience to extend its workshop for the assembly and testing

of class 1 transformers in the 5 to 80 MVA range.

5.1.6 There are many competitors in the Class 0 segment of the market,

which has partly been responsible for prices that some of the players

in the industry, like EII, are not able to compete with. Within the Class

0 segment, EII has for many years produced pole mounted

transformers that comprised about a third of its total production, at a

manufacturing cost that exceeds the revenue generated from

customers. Since about October 2018, the pole mount line has been

mothballed. With regards to distribution transformers and mini subs,

EII was able to generate positive margins, albeit not adequate to

absorb all operating and fixed costs.

5.1.7 Following the designation by the DTI of certain transformers (5 to 80

MVA) for higher local content, EII and Siemens concluded a five year

partnership agreement whereby Siemens would partner with EII to

increase its local content on Class 1 transformers and EII would

diversify its transformer offering to increase volumes and margins.

This partnership resulted in the Class 1 facility being designed and

funded between EII, IDC and the DTI (through the BIP incentive

scheme) to the tune of approximately R75 million, of which R56

million had been spent between the funding partners.

5.1.8 Although the DTI’s portion of the funding was agreed at R28 million,

DTI funding works on a reimbursive basis and therefore requires the

beneficiary to essentially pay for the equipment and then submit a

claim once the equipment is delivered on site. This reimbursive model

creates unnecessary CAPEX funding gaps, as the beneficiary is

compelled to stretch its balance sheet further, before receiving the

BIP grant claims. To address this crisis, EII secured a bridge loan from

Siemens for circa R10 million to purchase some of the equipment that

was allocated to the BIP grant. In addition, the DTI’s turnaround to

process the claims can sometimes be long, which unfortunately was

EII’s experience on this project.

5.1.9 In terms of the bridge loan agreement between EII and Siemens, the

loan is secured by means of a cession of the DTI claims, debtors, EII

bank accounts, as well as the assets financed by the Siemens loan.

However, on close scrutiny it appears that the security provided may

not have been valid as the IDC had pre-existing similar security and

the IDC’s consent was not secured prior to pledging the same security

the IDC already had. Without obtaining the IDC’s approval, no valid

cession could be entered into or any such cession would be

reversionary subject to the IDC’s secured claims being paid in full

before the reversionary cessionary could claim any rights in terms of

the cession.

5.1.10 The IDC approved a shareholder loan facility (Seventh Shareholders

Loan) amounting to R46.6 million in February 2019. However, this

facility could not be drawn on, as one of the suspensive conditions on

the agreement was the award of an Eskom tender for pole mounts

and mini-subs, which tender has as yet to be adjudicated by Eskom,

the tender validity date having been extended several times.

5.1.11 Although the Class 1 facility is not complete, Eskom conducted a

factory evaluation of the facility as part of its evaluation of a Class 1

transformer tender. Eskom indicated that they would like to conduct

another review once the facility is complete. The adjudication of the

tender was postponed to April 2020 but nothing has transpired at the

date of Publication. The demand for Class 1 transformers has been

demonstrated to outstrip local supply capacity, so the completion of

a state-of-the-art Class 1 facility in the country remains a strategic

proposition.

5.1.12 Although a small industry player, EII has enjoyed a certain degree of

competitive advantage due to its competitive pricing, its offering of

shorter lead times, and its provision of technical compliance and

sound quality.

5.1.13 The IDC has been the main funder to the Company, having provided

various loans, guaranties, and other funding instruments over time.

The IDC’s exposure to the Company at Commencement Date was

R377.6 million, including a preference share of R51 million. The

redemption value of the preference share is R8.1 million.

5.1.14 Although the IDC had provided a guarantee of R10 million to SBSA in

respect of the EII bank overdraft, SBSA called the guarantee up

before BR Commencement Date, at which point the overdraft

utilisation was circa R3,7 million, but SBSA off-set this balance against

payments received from EII’s customers after BR Commencement

Date. The BR Practitioner had requested the IDC to nevertheless

honour the guarantee call up by SBSA, so that SBSA can release the

off-set amount to be utilized for urgent procurement to enable

continuation of production. IDC informed the BR Practitioner that this

guarantee has in fact expired.

5.1.15 The limited order book of approximately R15 million in the last quarter

of calendar year 2019 had by the end of April 2020 increased to

approximately R33 million. However, due to inability to secure PCF

for this purpose, EII has not been able to execute on the majority of

these orders, with the result that in the case of the City of Cape Town,

EII was compelled to surrender the orders and allow the city to place

the orders with alternate service providers.

5.2 BACKGROUND TO THE FINANCIAL DISTRESS OF THE COMPANY

5.2.1 As set out in the sworn statement, the Company was in financial

distress prior to the commencement of the business rescue

proceedings as a result of the following factors:

5.2.1.1 Failure to prevail on the IDC to approve the reallocation of the

funding support approved in December 2018 towards new

priorities identified in a business plan submitted to the IDC in

support of the new priorities;

5.2.1.2 Expiry of supplier guaranties provided by the IDC to various

suppliers of the Company, on or about 31 July 2019; and

5.2.1.3 Expiry on 31 August 2019 of the guarantee provided by the

IDC to SBSA as security for the bank overdraft, resulting in

the cancellation of the overdraft facility.

5.2.2 The other factors that contributed to the financial distress of the

Company are as follows:

5.2.2.1 Systemic risk posed by the financial instability of Eskom, due

to the well published myriad of problems that have bedevilled

it in the past decade. Eskom has called for tenders in respect

of various types of transformers, but postponing the

adjudication of these tenders indefinitely or even cancelling

some of the tenders.

5.2.2.2 Some of the Company’s historical municipal contracts expired

during the 2019 calendar year, with replacement new tenders

only being advertised much later in the year, resulting in a

diminished order book by the fourth quarter of the calendar

year. The diminished order book resulted in the reduction of

revenue, which reduced revenue carried relatively lower

margins.

5.2.2.3 As with most local transformer manufacturers, EII’s

technology is outdated (at least 20 years behind the

developed world), resulting among other things in material

costs that are over-specified and costing more than 30%

compared to the material content of European transformers,

for example.

5.2.2.4 EII has also been affected by a number of internal problems,

some of which have been caused by instability at senior

management level. Productivity and performance have not

been closely monitored as a result.

5.2.2.5 EII’s gross margins have remained low for at least the last 3

financial years, ranging between 7% and 12%. A high-level

assessment conducted by Siemens has indicated that

inefficiencies in procurement and production could increase

gross margins to at least 20% in a short time frame. Due to

its weak financial position, EII has tended to rely on its current

suppliers that have continued to grant it credit facilities largely

due to long standing relationships and expectation that the

IDC, as a shareholder, will continue to fund EII.

5.2.2.6 EII carries a huge amount of debt on its balance sheet and no

equity, which limits access to working capital sources.

Consequently, the interest burden further exacerbates the

profitability challenges that confront the Company.

5.3 HISTORICAL FINANCIAL INFORMATION

5.3.1 The Company’s historic financial position is set out below:

Aug Feb Feb Feb

2019 2019 2018 2017

Unaudited Unaudited Audited Audited

R’000 R’000 R’000 R’000

Assets

Non-Current Assets

Property, plant & equipment 50 451 47 964 26 507 26 705

50 451 47 964 26 507 26 705

Current assets

Trade and other receivables 33 135 32 301 29 821 20 445

Inventories 9 094 15 350 27 091 38 377

Cash and cash equivalents 4 9 258 1 157 955

42 233 56 909 58 069 59 777

Total assets 92 684 104 873 84 576 86 482

Equity and liabilities

Equity

Share capital 58 104 58 104 58 104 58 104

Retained income -334 626 -312 958 -275 540 -236 374

-276 522 -254 854 -217 436 -178 270

Non-Current Liabilities

Deferred tax - 2 532 - 2 302

Loans from shareholders 327 414 309 187 252 454 188 475

Other financial liabilities - 844 1 164 1 194

Employee benefit obligation 30 28 - -

Instalment sale obligation - - - 48

327 444 312 591 253 618 192 019

Current Liabilities

Bank overdraft 3 595 - 5 577 6 741

Instalment sale obligation 0 - 31 38

Trade and other payables 37 396 42 753 41 941 64 824

Provisions 771 4 383 845 1 130

41 762 47 136 48 394 72 733

Total Equity and Liabilities 92 684 104 873 84 576 86 482

Explanatory Notes:

5.3.2 The increase in PPE is the result of assets purchased for the Class 1

facility. The facility has not yet been commissioned.

5.3.3 Trade and other receivables in August 2019 include an amount of R18

million in respect of the DTI grant still to be claimed. Trade receivables

have reduced significantly due to the decline in revenue. All trade

receivables were subsequently collected from the respective debtors,

except for the R18 million that was not received from the DTI.

5.3.4 Inventories of R9 million do not reflect the actual inventories as the

last stock count was done in February 2019 for year-end accounting

purposes, and also that the SYSPRO system has not been updated for

stock movements for some time.

5.3.5 Loans from shareholders include subordinated debt from the IDC,

which at FY2018 was indicated as R218 million per the directors’

report included in the AFS. However, according the claim

documentation from the IDC, it appears that the subordination is only

among the IDC instruments and not in favour of the general body of

creditors.

5.3.6 The Company’s historical financial performance is set out below:

12 months 12

months

12

months

12

months

Feb Feb Feb Feb

2020 2019 2018 2017

Unaudited Unaudited Audited Audited

R’000 R’000 R’000 R’000

Revenue 80 039 166 229 250 672 196 392

Cost of sales -66 859 -153 398 -220 888 -176 346

Gross profit/(loss) 13 180 12 831 29 784 20 046

Other operating income 0 29 626 2 522 544

Operating expenses -40 909 -64 841 -62 821 -51 221

Operating (loss)/profit -31 593 -22 384 -30 515 -30 631

Investment income - 4 52 -

Finance costs -11 571 -12 480 -11 004 -5 899

(Loss)/profit before taxation -43 164 -34 860 -41 467 -36 530

Taxation - 239 -495 -1 588

(Loss)/profit Year -43 164 -34 621 -41 962 -38 118

Explanatory Notes:

5.3.7 Revenue declined largely as a result of the decreased order book

following expiry of a large number of contracts. Delays in adjudicating

tenders particularly by Eskom contributed significantly to the

reduction in revenue. The exit from the pole mount line in FY2019

contributed significantly to the reduction in revenue. The pole mount

contracts in place at the time of exit were all loss making. Revenue

for FY2020 was further negatively affected by lack of working capital

to execute on orders with a value of circa R33 million.

5.3.8 Gross profit margin between FY2017 and FY2019 ranged between 7%

and 12%, largely due to the significant pole mount business that

brought significant revenue but with no margin. In FY2020 the margin

improved to 16.5% following exit of the pole mount business.

5.3.9 Other operating income in FY2019 included accrued income of R28.8

million in respect of the DTI BIP grant.

5.3.10 The most significant components of operating expenses are salaries,

rent and depreciation, making up circa 70% of total operating

expenses. Salaries represent approximately 50% of the total

operating expenses. Although operating expenses have reduced in

FY2020 largely as a result of the closure of the pole mount line, these

costs included retrenchment costs paid in June 2019. However, in

August 2019 salary increases were effected, backdated to March

2019. This appears counter intuitive as by August 2019 it must have

been foreseen that the Company would be placed in business rescue.

6. STEPS TAKEN SINCE THE APPOINTMENT OF THE BR

PRACTITIONER

6.1 ADMINISTRATIVE MATTERS

6.1.1 Business Rescue Timeline

EVENT DATE

Directors’ resolution passed to commence Proceedings 27/08/2019

Resolution of directors filed with CIPC 03/09/2019

Notice of appointment of BR Practitioner filed with CIPC 04/09/2019

Notice of commencement of Proceedings published 09/09/2019

Notice of appointment of BR Practitioner published 09/09/2019

First meeting of creditors held 18/09/2019

First meeting of employee representatives held 18/09/2019

Last date to publish the BR Plan 16/10/2019

Extended last date to publish the BR Plan 07/11/2019




Meeting to consider the Plan to be held on or before 14/07/2020

6.1.2 Management Control

In terms of section 140(1)(a) of the Act, the BR Practitioner took over

full management control of the Company in substitution for its board

and pre-existing management, but as he was entitled to do, the BR

Practitioner delegated certain functions to pre-existing senior

management of the Company. The BR Practitioner has paid particular

attention to the functions entailing the administration of the affairs of

the Company and to protect its assets, to ascertain the viability of the

of the Company and to ascertain whether the Company could be

rescued or whether it was necessary to dispose of certain of the

Company’s assets to achieve a better dividend for Creditors in

Business Rescue as compared to the dividend that would accrue to

Creditors and Employees in a liquidation.

7. TAX AFFAIRS

7.1 The Company has submitted all tax returns in respect of all tax types

and has no post-commencement debt.

7.2 There is no income tax payable as to date the company has made

losses. The estimated tax losses at 29 February 2019 amounted to

R306.2 million, which if utilised in the future would resulting in

significant tax benefit.

8. DISPUTED CLAIMS AND CONTINGENT CLAIMS

8.1 The BR Practitioner is entitled to dispute any Claim at any time should

he come across any information requiring him to do so, until the BR

Plan is substantially implemented. At BR Publication Date, the

following claims are disputed:

8.1.1 CONCO has lodged a claim against EII, which EII denies, for payment

of R61 million for alleged contractual damages from a July 2015

agreement whereby EII supplied CONCO with transformers for

installation at Amakhala Wind Farm (employed by Nordex Energy

South Africa Pty Ltd). CONCO claims that EII supplied defective

transformers that were not fit for purpose. As a result, additional costs

have allegedly been incurred for maintenance and remediation to

keep the transformers operational. CONCO claims to have replaced

17 transformers and claim an impending replacement of a further 22.

8.1.2 Tractionel has lodged a claim against EII, which EII denies, for R5,1

million (excl VAT) for alleged contractual damages arising from a May

2016 agreement (partly written, partly verbal) for the supply of

transformers to be installed on the Transnet’s Rooikop to Newcastle,

Transmission line and Refurbishment Project. Tractionel claims that

EII supplied defective transformers that were not fit for purpose and

that Tractionel has had no choice either than to replace all 112

transformers from an alternate supplier, a process that occurred

between August 2018 and April 2019.

8.1.3 The Landlord has presented a claim of R56.4 million as an estimate

of its damages following the cancellation of the lease with effect from

1 April 2020. The damages claim was lodged on 29 June 2020. As the

Landlord is in the process of leasing the premises out, either to the

EII successful bidder or to any other tenant, the true extent of the

damages is not yet ascertainable, as the Landlord has a duty to

mitigate its damages. Accordingly, this claim is disputed.

8.1.4 The disputed claims will be resolved by means of an expedited dispute

resolution process as set out in this BR Plan.

8.2 CONTINGENT AND GUARANTEE CLAIMS

There are no known contingent or guarantee claims against the

Company.

9. TRADING FOLLOWING BR COMMENCEMENT DATE

9.1 CASH ADMINISTRATION

In order to minimise the operating expenses of the Company, the BR

Practitioner continues to:

▪ monitor the cash flow and financial position;

▪ control payments; and

▪ enforce general controls.

9.2 EMPLOYEE MATTERS

9.2.1 A first meeting with the Employee Representatives was convened and

held on 18 September 2019.

9.2.1.1 An Employees Committee was established, comprising of members

from the trade unions, management and other non-unionised staff

members.

9.2.2 Approximately 13 months prior to the commencement of business

rescue, the Company implemented a Section 189A process where 60

employees were retrenched. This was a combination of weekly and

monthly staff. A further Section 189A process has not been

implemented since, but will be embarked upon imminently as this

plan envisages the wind down of operations. In an effort to avoid the

Section 189A process, the Company has concluded voluntary

terminations with the majority of its current staff complement. A

Section 189A consultation process with those employees that have

not availed themselves for the VSP will start after the publication of

the BR Plan and it is hoped that an agreement will be concluded

imminently.

9.2.3 Although the BRP’s initial view was that retrenchments would be kept

at a minimum, due to inability to raise PCF, inability to continue

trading meant that the business of EII could not be sustained as a

going concern. As this BR Plan shows, continuation of operations by

EII in its present form is no longer possible. Accordingly, the BRP

invited all employees of EII to avail themselves for a proposed mutual

separation agreement. To date, 73 employees have accepted the

VSP’s and will conclude the relevant agreements with the Company,

after which they will receive the agreed benefits.

9.2.4 A retrenchment and consultation process in line with Section 189A of

the LRA will be implemented for those employees who do not choose

to take up the VSP option (approximately 31 employees). This process

will commence after the publication of the BR Plan.

9.2.5 The Company received approval on 15 January 2020 for

implementation of the CCMA’s TERS program which was approved

with a grant amount of R6.8 million for 117 employees for a 6 months

period. Employees of EII would be provided with SETA accredited on-

the-job training and also receive 75% of their salary up to a maximum

of R12,842 while the company was being restructured.

9.2.6 Following approval of the TERS programme and ahead of the

disbursement of approved funds, a national lockdown was

implemented in South Africa on 26 March 2020 due to the advent of

the Covid-19 pandemic. With the lockdown in place employee training

could not be conducted as the facility was closed and all staff

members were quarantined at home. In response to the crisis

situation, the government also initiated a salary subsidy programme

through the UIF where employees who were not receiving salaries

due to financial distress of their business could be paid a

supplementary salary.

9.2.7 As it was not possible for any training to occur while in lockdown, and

the funding had in any case already been approved, the training

component was de-linked from the approved TERS. A Memorandum

of Agreement was signed between the UIF and EII on or about

February 2020. The first tranche of salary payments was made on 22

May 2020 to staff members for April 2020 salaries. May 2020 salary

payments were delayed and only received on 26 June 2020 allegedly

due to staffing issues at UIF as a result of Covid-19. As a result, June

2020 payment documentation was submitted on 28 June 2020 as one

of the requirements of the UIF is proof that salaries from the previous

month have been paid to all employees. The Company is following up

with the UIF in respect of this issue so that all staff members are able

to receive their June 2020 salaries.

9.2.8 In 2018 EII had an employee fatality at a client site (Shoprite). A joint

investigation was undertaken which was led by Shoprite. The

Department of Labour has concluded their report as at November

2019 and have submitted it to the NPA who are still to provide their

decision on whether they will prosecute. Business rescue has no

bearing on these proceedings.

9.3 CREDITORS

9.3.1 At the BR Commencement Date, the Company’s known Creditors,

attached hereto as Annexure A, in aggregate amounted to R396

million, made up of the following:

Insolvency Classification Total Claims

R'000

Secured creditors 138 843

Preferred claims of employees 566

Unsecured creditors 256 635

396 044

9.3.2 The balance above excludes disputed claims amounting to R121m as

discussed in more detail in paragraph 8.1.

9.3.3 The IDC has settled guarantee claims by some of the Unsecured

Creditors amounting to R18,2 million. The IDC could adjust its claim

to include payments under the supplier guarantee claims, which

however will not make a material impact on the IDC’s claim or the

dividend it will receive.

9.4 BUSINESS RESCUE INITIATIVES

9.4.1 Engagement with Creditors.

The BR Practitioner has engaged with the IDC as an important

development finance lender and as the largest creditor, to explore

alternatives to raise PCF and determine how the IDC can

accommodate the Company during the recovery period. The IDC has

agreed to provide PCF of R9.6 million for the purposes of paying the

retrenchment costs and payment of critical care and maintenance

costs.

The BR Practitioner has also engaged with Siemens as EII’s partner

on the construction of a Class 1 factory, with a view to establish how

Siemens can assist to ensure completion of the factory and to secure

their support for the business rescue in general.

The BR Practitioner has also engaged with the landlord who has since

cancelled EII’s lease for the premises due to non-payment. However,

engagement between the landlord and potential buyers has been

initiated to discuss possible future options on rental and/or ownership.

On 26 June 2020, the landlord issued an application out of the High

Court of South Africa, Western Cape Division, Cape Town under case

number 7963/2020 in terms of which the landlord seeks an order for

the ejectment of the Company from its leased premises. The

application is provisionally set down for hearing on 29 July 2020

should there be no opposition to the application.

10. MATERIAL ASSETS.

10.1 The material assets of the Company at BR Commencement Date 31

August comprised:

Description

Market

Value

Forced

Sale

Value

R’000 R’000

Plant Machinery and Office 7 929 3 161

New Plant to be commissioned 21 141 12 891

Total 29 070 16 025

10.2 A valuation has been undertaken by Tony Diessel and is annexed

hereto marked as Annexure D.

10.3 The IDC perfected two General Notarial Bonds (“GNB”) over certain

assets of EII, pursuant to a rule nisi granted on 21 August 2019, with

an original return date of 17 September 2019, extended to 17 October

2019. The BR Practitioner consented to the interim perfection order

being made final, subject to the assets remaining in the custody of

the Company and/or the BR Practitioner and to be disposed only in

the course of business rescue.

10.4 The landlord has however indicated that it disputes the IDC's

perfection of its General Notarial Bonds over the movable assets of

the Company and has also suggested that it has a landlord tacit

hypothec and thus has a security interest as contemplated in Section

134 of the Act. The BR Practitioner has informed the landlord that its

claim is not secured as the landlord did not take any steps to perfect

its hypothec. With regards to the dispute on the perfection of the

GNBs, the BR Practitioner has informed the landlord that any valid

dispute in relation to the perfection or security will be resolved by

means of an expedited dispute resolution process as set out in this

BR Plan.

10.5 The IDC further holds various unperfected General Notarial Bonds and

a Special Notarial Bond over the balance of movable assets.

10.6 Class 1 assets financed by Siemens, have not been capitalised, as

these assets remain the property of Siemens until certain conditions

are met for ownership to transfer to EII. They are valued at R11

million open market value and R6.5 million on a forced sale basis.

10.7 COMPLETION OF THE CLASS 1 FACILITY

10.7.1 The Class 1 facility needs to be completed in order for EII to

participate in the Class 1 tender currently in adjudication. A

substantial amount of R56,1m has already been spent and the facility

is approximately 70% complete.

10.7.2 Completion of the class 1 transformer facility is highly dependent on

the DTI honouring its obligations to the 4 parties (DTI, Siemens, IDC

and EII) involved in this work package. The plan by the new entrant

Revive to manufacture class 1 transformers, will have a positive

impact on EII which will pave the way for DTI to rescind the decision

to not provide the agreed grant of over R18m to complete the facility.

10.7.3 This facility will become one of only 3 in South Africa, with the

capacity to produce up to 80MVA power transformers. Class 1 sales

are expected within the horizon mentioned above.

PART B – TERMS OF THE BUSINESS RESCUE PLAN

11. CREDITORS VOTING INTEREST

11.1 A creditor has a voting interest equal to the value of the amount owed

to that Creditor by the Company on the date of publication of the BR

Plan;

11.2 A Creditor who has a Disputed Claim or a Contingent Claim, will only

be allowed to vote to the extent of the undisputed or non-contingent

portion of their claim. For the avoidance of doubt, this will not affect

the final distribution to such Creditors as the quantum of their Claims

will be finalised mutually between the parties or through the dispute

resolution mechanism as set out in paragraph 30.

11.3 In terms of Section 145(4)(b) of the Companies Act, a Creditor who

would be subordinated in liquidation has a voting interest, as

independently and expertly appraised and valued at the request of

the BR Practitioner, equal to the amount, if any, that the creditor

could reasonably expect to receive in such a liquidation of the

Company.

11.4 All liquid proven Claims, including contingent and suretyship or

guarantee Claims will be allowed to vote if the claim has been allowed

and approved by the BR Practitioner. The decision of the BR

Practitioner in this regard will, subject to any manifest error, be final

and binding on the Creditor(s) concerned.

11.5 If the value of a Claim of a BR Commencement Date Creditor has

changed since the date of commencement of business rescue

proceedings, the amount of the claim as at the date of publication of

this plan will be accepted.

12. FEE AGREEMENT

12.1 The BR Practitioner’s remuneration is at the hourly tariff for a large

company based on the Company’s public interest score at the BR

Commencement Date. The public interest score calculated in terms of

Regulation 26(2) of the Act as at the BR Commencement Date is 687

points.

12.2 A company is regarded as a large company if its public interest score

is over 500.

12.3 Regulation 128 to the Act sets out the hourly tariffs that a practitioner

is entitled to charge, in accordance with section 143(1). The hourly

tariff applicable for large companies is R1 754.

12.4 As Regulation 128 came into operation in April 2011, and has

remained unchanged, the current tariffs have thus not been adjusted

for inflation and are therefore no longer appropriate in 2019. Had the

tariffs been adjusted for inflation at approximately 8% per annum,

the hourly tariff for large companies would be R3 248, up from

R1 754.

12.5 In terms of section 143(2) of the Act, the BR Practitioner hereby

proposes an agreement for further remuneration (Refer to Annexure

E), additional to the prescribed tariff, resulting in an increase in the

hourly charge out rate of the BR Practitioner to R3 000 per hour

(excluding VAT), retrospectively from the date of his appointment.

13. PROPOSAL MADE INFORMALLY BY A CREDITOR

This BR Plan contains no proposal made by a Creditor of the Company.

14. OBLIGATION TO INVESTIGATE THE AFFAIRS OF THE COMPANY

IN TERMS OF SECTION 141 OF THE ACT

14.1 In terms of Section 141(1) of the Act, the BR Practitioner is required

to investigate the affairs, business, property, and financial situation,

and after doing so, consider whether there is any reasonable prospect

of the Company being rescued.

14.2 Section 141(2)(c) of the Act states that if, at any time during business

rescue, the BR Practitioner concludes that there is evidence, in the

dealings of the Company before Business Rescue began of –

“(i) voidable transactions, or a failure by the Company or

any director to perform any material obligation

relating to the Company, the practitioner must take

any necessary steps to rectify the matter and may

direct the management to take appropriate steps;

(ii) reckless trading, fraud or other contravention of any

law relating to the Company, the practitioner must –

(aa) forward the evidence to the appropriate

authority for further investigation and

possible prosecution; and

(bb) direct the management to take any

necessary steps to rectify the matter,

including recovering any misappropriated

assets of the Company.”

14.3 The BR Practitioner has undertaken the investigation envisaged in

section 141(1) and has taken steps required in terms of section

141(2)(c) of the Act to ascertain whether there have been any

voidable transactions or whether there has been any reckless trading,

fraud or any other contravention of any laws relating to the Company.

14.4 Although the Company has been trading negatively for some time,

the BR Practitioner is not in a position to conclude decisively at this

time whether the conduct of the directors constituted reckless trading

as he would need to make extensive enquiries.

15. VOTING BY PROXY

15.1 Voting by proxy will be allowed as long as the form of proxy attached

to the Notice of the Meeting is lodged with the BR Practitioner in terms

of section 152 of the Act. Creditors and Affected Persons are required

to lodge their forms of proxy by no later than 10h00 on the day before

the meeting.

15.2 All forms of proxy given on behalf of a company, a legal entity or a

trust must be accompanied by a valid and duly authorised resolution

supporting the appointment of the signatory to the proxy.

PART B – PROPOSAL

16. GENERAL PURPOSE AND OBJECTIVE OF BUSINESS RESCUE

16.1 The purpose of business rescue, as set out in section 128(1)(b)(iii) of

the Act, is to develop and implement a plan that either:

16.1.1 rescues the Company by restructuring its affairs, business, property,

debt and other liabilities, and equity in a manner that maximises the

likelihood of the Company continuing in existence on a solvent basis

(“Primary Objective”); or

16.1.2 if the aforementioned is not possible, results in a better return for the

Company’s creditors or shareholders than would result from the

immediate liquidation of the Company (“Secondary Objective”).

16.2 This proposal set out in this BR Plan seeks to achieve the Secondary

Objective of business rescue, but could also achieve the Primary

Objective in the event the investor is able to re-commence activities

and re-employ some of the employees that may be retrenched.

16.3 The objective of this proposal is to provide Creditors and Employees

with information, so that they may:

16.3.1 assess the likely outcome of the dividend yield calculation under

business rescue; and

16.3.2 be assured of the likelihood of obtaining a better outcome under

business rescue for all Affected Persons, when compared to a

liquidation.

17. CLAIM SETTLEMENT PROPOSAL

17.1 SEARCH FOR INVESTORS

17.1.1 As the Company has no working capital and the BR Practitioner has

not been able to secure any PCF to enable resumption and

continuation of business, the only option available to the Company

was a sale of the business in one form or another. To this extent, the

BR Practitioner entered into discussions with various potential

investors within the sector.

17.1.2 The BR Practitioner received an initial expression of interest in

October 2019 from a potential investor ContiPower, who showed a

serious intent to conclude a transaction with the BR Practitioner and

followed up with a non-binding offer on 26 November 2019. On 4

February 2020, on completion of the detailed due diligence exercise

and the production of a financial model, the potential investor

submitted a binding conditional offer to acquire 51% of the issued

share capital of EII. The offer also proposed a partnership with the

IDC with an associated funding structure between the 2 parties. The

offer failed as the IDC stated their intention to exit the business and

recommended that ContiPower must explore other avenues of raising

funds. ContiPower has submitted another binding offer in line with the

sale of assets bidding processes referred to in section 17.1.5 below.

17.1.3 During the period that the BR Practitioner was engaged in

negotiations with ContiPower, he was approached by other potential

investors who discussed various investment options and opportunities

that included amongst others the acquisition of assets or acquisition

of the business. The BR Practitioner did not receive any binding offers

from the interested parties.

17.1.4 In May 2020, having exhausted attempts to raise PCF and with the

ContiPower offer having failed, and no additional offers having been

tabled by potential investors, the BRP concluded that other than the

immediate liquidation of the Company, an orderly wind-down (whose

primary objective is the realisation of assets and distribution of

proceeds to its creditors) would achieve a better outcome than a

liquidation of the Company.

17.1.5 To this end, a process for the sale of EII assets was initiated on 15

May 2020 with a deadline of 12 June 2020 (INVITATION TO SUBMIT

A BINDING OFFER (“BO”) TO ACQUIRE THE ASSETS OF EII (THE

“PROPOSED TRANSACTION”)) and potential investors who had

previously expressed an interest in EII were invited to participate.

These potential investors included Actom, LogiDist, SGBS, Revive,

Nega, MCM Electron and ContiPower. All bidders signed non-

disclosure agreements with EII and, by 22 May 2020 as requested,

they submitted their signed confirmation of interest to participate in

the bid.

17.1.6 All bidders were provided access to a virtual data room with the

required Company information for bidders to access remotely at any

time to undertake the due diligence. The only obstacle in the due

diligence process was physical access to the facility as some bidders

were based outside of Cape Town and there was no cross provincial

travel permitted due to Covid-19 restrictions.

17.1.7 Three bidders, namely Actom, ContiPower and Revive, submitted

competent binding offers on 12 June 2020, in accordance with the

timeline set out in the bid process. SGBS, on the other hand, only

submitted an offer for one item, as well as an offer for stock. The

SGBS offer is considered non-competent as it constitutes just over

2% of the assets on offer and thus cannot be evaluated on its own.

17.1.7.1 The Actom offer, attached hereto as Annexure F, is an offer to

acquire, for a total of R15 million, on a debt and cash free basis, 100%

of the movable assets of EII as listed in the Asset Appraisal document

issued in December 2019. Included in this offer is the class 1 testing

bay assets financed by Siemens and in EII’s possession. Actom will

fund the acquisition from its own available cash resources.

17.1.7.2 The ContiPower offer, attached hereto as Annexure G, is for an

acquisition of 100% shareholding in EII for R18 million or alternatively

offers R13 million for the purchase of all of EII’s assets as listed in the

Asset Appraisal document. ContiPower offers a further R13 million for

the Siemens Class 1 testing bay assets. The acquisition is funded

through a combination of its own funds and debt to be provided by

SBSA. ContiPower proposes to continue operations at the current

premises.

17.1.7.3 The Revive offer, attached hereto as Annexure H, is for acquisition

of all of EII assets for R32 million and, further offers to acquire the

Siemens test bay assets for R11 million. Revive will fund the

acquisition from its own resources.

17.1.8 Siemens may not require compensation for the testbay assets if the

DTI agrees to a proposal incorporating the DTI waiving certain

penalties that it otherwise is entitled to if the Class 1 project is not

completed.

17.1.9 Based on the evaluation of the offers received, the Revive offer is

recommended for acceptance (“the Offer”) as it is for a substantially

higher amount compared to ContiPower and Actom. ContiPower and

Actom offers are recommended as the second and third preferred

offers, respectively, should the Revive offer fail for one reason or the

other.

17.2 THE OFFER

17.2.1 The proceeds from the Offer will be utilised towards settlement of BR

Claims as reflected in the Probable BR Dividend schedule per

Annexure C.

17.2.2 Revive have indicated that instead of the asset purchase as indicated

in their offer, they now prefer to change the structure of their offer to

be in the form of an acquisition of all of the issued share capital of the

Company. They have further indicated that in the event their

negotiations with the Landlord should result in a satisfactory outcome,

they intend to operate through EII from the current premises.

17.2.3 As the Offer will entail the acquisition of the shares that are currently

in issue for a nominal consideration of R1.00, the current shareholders

of the Company will also need to vote for or against the adoption of

this BR Plan. In the event the shareholders vote against the BR Plan,

then the Offer will revert to an asset purchase.

17.2.4 Revive may re-employ some of EII’s employees should it be feasible

to re-establish operations in Cape Town, depending on largely

whether a new lease can be concluded with the Landlord on terms

that take into account the current economic climate that is unlikely to

change in the short to medium term.

17.2.5 However, all employees of EII have been offered the VSP, as there is

still no guarantee that the operations will be re-established in Cape

Town. Those who have not accepted the VSP offered will be

retrenched in line with the Section 189A process of the LRA. None of

EII employees, either terminated through the VSP process or Section

189A process, have an expectation of preferential re-employment or

being recalled should Revive re-establish operations in Cape Town.

17.2.6 BR Claims that are denominated in foreign currencies will be paid in

South African Rand, translated at the exchange rate applicable at the

BR Commencement Date.

17.3 SETTLEMENT OF BR CLAIMS FOLLOWING ACCEPTANCE OF THE

OFFER

BR Claims will be settled in accordance with the Order of Distribution

(the “Payment Waterfall”) as set out in paragraph Error! Reference

source not found. below. The indicative BR Dividend payable to BR

Creditors is further set out in Annexure C.

17.4 EXISTING AGREEMENTS AND CONVERSION OF CLAIMS TO EQUITY

17.4.1 Treatment of Existing Agreements:

17.4.1.1 The Company has entered into a number of continuing contracts in

respect of which it continues to use financed assets or continues to

receive a service as per the relevant contracts. All such contracts will

be terminated by the Company or cancelled by mutual agreement.

17.4.2 Conversion of Claims to Equity

This BR Plan does not propose that any Claims be converted to equity

in the Company.

17.5 PAYMENT OF CLAIMS

It is proposed that BR Claims be settled in the following manner:

17.5.1 The IDC’s Claims as at BR Commencement be partially paid from the

proceeds of the sale, with the balance to be written off.

17.5.2 All employee retrenchment costs be settled in full from part of the

PCF of R9.6 million secured from the IDC.

17.5.3 Unsecured BR Commencement Claims, will not be paid any dividend

as the quantum of the Claims is far in excess of the Offer;

18. PROOF OF CLAIMS AND TIMELINE FOR DISTRIBUTING ON TO

CREDITORS

18.1 Creditors are required to lodge their Claims with the BR Practitioner

prior to the Final Claims Date.

18.2 The BR Practitioner will have a discretion as to whether to allow a

Creditor to lodge any Claim after the Final Claims Date.

18.3 Creditors that have lodged Claims after the BR Adoption Date and

Final Claims Date, and whose Claims have been accepted by the BR

Practitioner in the exercise of the BR Practitioner's discretion, forfeit

their right to participate in distributions that have been made prior to

the lodgement of their Claims.

19. ORDER OF DISTRIBUTION – PAYMENT WATERFALL

19.1 In terms of the Companies Act, Creditors are to be paid the amounts

to be distributed in the following order of priority (to the extent that

there are funds available to pay all categories of Creditors in terms of

the waterfall below):

19.2 Based on the information the BR Practitioner has to date, the probable

dividend which Creditors should receive, in their respective classes,

as a result of the adoption of the BR Plan will be as follows:

Class Dividend

BR Costs 100 Cents

Pre-Commencement Secured Creditors 9 - 21 cents

Employee Claims during business rescue 100 cents

Unsecured PCF Creditors NIL

Unsecured Pre-Commencement Creditors NIL

20. MORATORIUM

20.1 The intention of a moratorium is to give a company the best possible

chance to implement the BR Plan so as to allow a company sufficient

time to restructure its affairs and particularly its liabilities so as to

enable it to return to a sustainably solvent position.

20.2 The commencement of business rescue proceedings places a

moratorium on legal proceedings against a company. This means that

creditors, even though their rights may be secured, will not be able

to take action against a company for non-payment of debts during

Business Rescue.

20.3 In the current circumstances, the moratorium in relation to the

Company commenced on the BR Commencement Date and will

remain in place until the BR Practitioner files a notice of substantial

implementation of the BR Plan with the CIPC.

21. EFFECT ON CREDITORS

21.1 Any contracts considered to be onerous to the Company will be

renegotiated or cancelled either by (i) agreement between the parties

thereto and the BR Practitioner or, (ii) failing agreement, the BR

Practitioner will apply to court to cancel all the Company’s’ obligations

under such Contracts. In the event that the counterparties to the

Contracts claim damages against the Company:

21.1.1 Litigation in respect of such damages Claims must be brought against

the Company before the date of Substantial Implementation, failing

which, a Creditor in these circumstances will be precluded from

bringing a claim for damages against the Company; and

21.1.2 Damages contemplated in 21.1.1 shall be regarded as Unsecured

Claims and deemed to have been compromised in terms of this BR

Plan. As such, the counterparties to Contracts who bring their

damages claim timeously (i.e. before Substantial Implementation)

shall only be entitled to receive an amount as an Unsecured Creditor

pursuant to the provisions of this BR Plan and if the Claim is not

disputed. If such Claim is disputed the matter will be resolved in

terms of the Dispute Resolution process set out herein.

22. EFFECT OF THE BR PLAN ON HOLDERS OF THE COMPANY’S

ISSUED SECURITIES

The BR Plan contemplates that all the shares currently in issue shall

be sold by the current shareholders to Revive for an aggregate

consideration of R1.00. A Sale of Shares Agreement will be concluded

facilitating the sale of the said shares. Accordingly, ordinary

shareholders will have to vote on this BR Plan, before it could be

adopted.

23. EFFECT OF THE BUSINESS RESCUE PLAN ON EMPLOYEES

23.1 A VSP as described in section has been offered to employees of EII as

outlined in section 9.2.8.

23.2 However, for those employees who have opted not to take up the

option of the VSP, a retrenchment process will be conducted in

accordance with Section 189A of the LRA.

24. BENEFITS OF ADOPTING THE BUSINESS RESCUE PLAN

COMPARED TO LIQUIDATION

The benefits to Creditors of adopting the BR Plan compared to a

liquidation are as follows

24.1 DIVIDEND

LIQUIDATION DIVIDEND

Divs Dividend

Liquidation Costs 100 cents

BR Costs 100 cents

Secured Pre-Commencement Claims 8 cents

Employee Claims during business rescue NIL

Post Commencement funding NIL

Employees statutory liquidation claims 0 cents

Pre-Commencement Concurrent Creditors 0 cents

The estimated BR Dividend payable if this BR Plan is implemented is

significantly higher than the estimated Liquidation Dividend, although

only Secured Creditors will receive a dividend.

24.1.1 The average time it takes to conclude a liquidation process and pay

liquidation dividends can be between 18 – 36 months, or longer

depending on the complexity of the estate.

24.1.2 In contrast, the BR dividend proposed in this plan will be paid within

a short period of time.

24.2 EMPLOYEES

24.2.1 Employees that may be retrenched as part of business rescue would

receive their full retrenchment packages, which are considered to be

remuneration and therefore payable as post-commencement finance

in terms of section 135(1) of the Act. In liquidation the preferent

portion of the severance package is capped at R32 000 per employee.

24.2.2 Unlike in business rescue where retrenchment payments are not

limited, in liquidation employees would be entitled to receive a

maximum preferent amount of R32 000 per staff member to the

extent that there are funds available. Such payments would only be

made once the final liquidation and distribution account has been

approved at the end of the liquidation process.

24.3 PENDING LIQUIDATION APPLICATION

24.3.1 On 5 March 2020, four creditors of EII, namely Cape Steel Core, TPS

01 CC, Alloy Magnetic Cores, and Mitre Core Technologies SA

launched an urgent application in the Western Cape Division of the

High Court, Cape Town in terms of which they seek an order

discontinuing the business rescue proceedings of EII and placing EII

under final liquidation. In terms of the founding application, these

applicants allege that the Company does not have reasonable

prospects of being rescued and thus they also seek the resolution of

directors that placed the Company in business rescue to be set aside.

24.3.2 This matter was set down for hearing on the urgent roll for 25 March

2020 but by agreement between the parties, the application was

postponed from 25 March 2020 to the semi-urgent roll of 15 June

2020.

24.3.3 The liquidation application has been opposed by the IDC, the

Company and the BRP, who have all filed their answering affidavits.

The Company and the BRP further filed their supplementary affidavits

as well as their reply to the applicants’ supplementary affidavit. The

applicants have also since filed their replying affidavits, as well as a

supplementary affidavit.

24.3.4 This matter is currently before the court and will continue on 6 July

2020 as the judge has given time for the Plan to be published as the

bid process for the sale of EII assets has only recently been concluded

and the winning offer forms the basis of the business rescue plan.

24.3.5 The BR Practitioner remains of the view that there is reasonable

prospect that EII can be rescued in accordance with this BR Plan and

subject to the conditions and assumptions set out herein.

25. RISKS OF THE BUSINESS RESCUE PLAN

The amount which Creditors could receive in terms of the BR Plan could

potentially be as predicted by the BR Practitioner, but may be adversely

affected by, inter alia, the following factors:

25.1 Collapse of the offers on which this BR Plan is based for whatever

reason;

25.2 Deteriorating market conditions;

25.3 unforeseen litigation of any nature whatsoever, howsoever arising,

from any cause of action whatsoever;

25.4 late claims and unforeseen damages claims arising from the

cancellation of any contracts or agreements of any nature

whatsoever, howsoever arising;

25.5 any changes in legislation that impact business rescue;

25.6 any challenges to this BR Plan, the rejection thereof or any

amendments thereto;

25.7 any regulatory challenges of any nature whatsoever, howsoever

arising;

25.8 any unforeseen circumstances, outside of the control of the BR

Practitioner of any nature whatsoever howsoever arising that impacts

on business rescue; and

25.9 material discrepancies in the information made available to the BR

Practitioner by the directors and senior management.

PART C – ASSUMPTIONS AND CONDITIONS

26. EFFECT OF THE BUSINESS RESCUE PLAN ON EMPLOYEES

Please refer to paragraph 22 (Effect of the Business Rescue Plan on

Employees) in this regard.

27. TERMINATION OF BUSINESS RESCUE

The business rescue proceedings will end:

27.1 if the BR Plan is proposed and rejected and no Affected Person or

Affected Persons act to extend the BR Plan in any manner

contemplated by the Act; or

27.2 this BR Plan is adopted and implemented (with the conditions fulfilled)

and the BR Practitioner has filed a notice of substantial

implementation of the BR Plan with the CIPC; or

27.3 a court orders the conversion of the BR into liquidation proceedings.

28. SUBSTANTIAL IMPLEMENTATION

Substantial Implementation will be deemed to have occurred as soon

as the BR Creditors have received the dividends proposed in the Plan.

29. PROJECTED BALANCE SHEET AND PROJECTED STATEMENT OF

INCOME AND EXPENSES

29.1 The projected balance sheets and statements of income and expenses

of the Company for the ensuing 3 years have not been prepared, as

it is not known whether the operations will be re-established or Revive

will relocate operations to its other properties in Johannesburg. In

addition, it is not possible to guess operating assumptions and funding

that will be required to re-establish the operations. As this BR Plan

proposes settlement of all BR Claims from the cash injection by

Revive, the absence of financial projections in this BR Plan has no

bearing on the proposed BR Dividend and thus has no effect on this

BR Plan.

30. DISPUTE RESOLUTION

30.1 Save as provided for in section 133 of the Act, in respect of all or any

disputes by the BR Practitioner on Claims submitted by Creditor(s)

and Employees, which disputes include, but are not limited to,

disputes on the existence or otherwise of Claim(s), on quantum of

Claim, security claimed by a Creditor, the nature of the security, the

extent and value of the security and the like (“the dispute”) such

dispute can only be resolved in accordance with the dispute

mechanism outlined below.

30.2 The dispute mechanism procedure will be as follows:

30.2.1 Any creditors who have received a notification from the BR

Practitioner of a dispute must contact the BR Practitioner in order to

resolve such dispute within 15 days from the date of the notice.

30.2.2 If the Creditor does not avail itself of this 15-day opportunity then the

BR Practitioners decisions is final. If after having availed itself and the

dispute is not resolved within the 15 day period, the Creditor will be

afforded 7 days (reckoned from the date of expiry of the 15 days) to

nominate a retired judge as an expert (not as an arbitrator or

mediator) to preside over and to resolve the dispute. Should the

Creditor not make this nomination the BR Practitioner will do so on

his/her/its behalf and this nomination will be binding on the

Creditor(s).

30.3 The retired judge when nominated and who agrees to accept such

appointment (hereinafter referred to as the “expert”) will endeavour

to complete his mandate within 30 days of his appointment or within

such further time period as the expert in his sole discretion may

determine. To the extent that any expert as nominated by the

Creditor or Employee/s refuses to act or is not available to act, the

Creditor, or if he refuses or does not do so within three days of being

requested by the BR Practitioner to do so, the BR Practitioner on

his/her/its behalf is then obliged to choose another retired judge(s)

from the above list until one such judge is available to act and is

agreeable to act.

30.4 The expert will in his sole and absolute discretion determine:

30.4.1 the venue at which the dispute is to be resolved;

30.4.2 the rules, regulations and procedures that will govern the

determination of the dispute;

30.4.3 the date(s) for the determination of the dispute;

30.4.4 will give his award / determination within 5 days of the completion of

the process as determined by him; and

30.4.5 will as part of his award / determination determine who is liable for

the costs of the determination such costs to include his costs, legal

costs, venue costs, recording equipment (if applicable), transcript of

evidence (if applicable) and the like.

30.5 The Creditor/s agrees that, save for any manifest error the

determination of the expert will be final and binding on the Creditor/s,

the Company and the BR Practitioner and will not be subject to any

subsequent review or appeal application / procedure / process.

30.6 The expert shall be entitled to make an award for costs in his

discretion.

30.7 The Creditor, the Employee/s, the Company and the BR Practitioner

agree to use their utmost endeavours to ensure that the entire

dispute is determined by the expert within the 30-day period as set

out above.

31. DISCHARGE OF DEBT AND CLAIMS

31.1 If the BR Plan is adopted and implemented in accordance with its

terms and conditions, any Creditor who has acceded to be the

discharge of the whole or part of a debt owing to that Creditor will

lose the right to enforce the relevant debt or part thereof in

accordance with Section 154(1) of the Act.

31.2 Accordingly, in terms of Section 154(2) of the Act, if a BR Plan has

been approved and implemented, a Creditor will not be entitled to

enforce any debt owed by the company immediately before the

beginning of the BR process, except to the extent provided for this BR

Plan.

31.3 The discharge of debt as contemplated in this BR Plan does not affect

a Creditor’s right to claim against sureties and guarantors.

32. EFFECT ON CLAIMS

32.1 After the adoption and implementation of the BR Plan, the Company

will be discharged from its obligations in accordance with Section

154(1).

33. ABILITY TO AMEND THE BUSINESS RESCUE PLAN

33.1 Provided that any amendment will not be prejudicial to any of the

Affected Persons, the BR Practitioner shall have the ability, in his sole

and absolute discretion, to amend, modify or vary any provision of

this BR Plan, provided that at all times the BR Practitioner acts

reasonably. The Amendment will be deemed to take effect on the

date of written notice of the amendment to all Affected Persons.

33.2 Should the BR Practitioner wish to effect an amendment to the plan

that will be prejudicial to any of the Affected Persons, he will convene

a further meeting of creditors and call for a vote to approve the

amendment. A simple majority of votes cast by the holders of

independent voting interests will be sufficient to approve the

amendment.

33.3 It is specifically recorded that the provisions of business rescue shall

mutatis mutandis apply to the extension or reduction of any

timeframes by the BR Practitioner.

34. SEVERABILITY

Any provision in this BR Plan which is or may become illegal, invalid

or unenforceable shall be ineffective to the extent of such prohibition

or unenforceability and shall be treated pro non scripto and severed

from the balance of this BR Plan, without invalidating the remaining

provisions of this BR Plan or affecting the validity or enforceability of

such provision in any other jurisdiction.

35. CONCLUSION

35.1 The adoption of this BR Plan will result in a better outcome for all

creditors than would be the case if the Company were to be liquidated.

36. BRP’S CERTIFICATE

I, the undersigned, Sipho Sono, hereby certify to the best of my

knowledge and belief that:

(a) any actual information provided herein appears to be

accurate, complete and up to date;

(b) the BR Practitioner has relied on financial information

including opinions and reports furnished to him by

management of the Company, where applicable;

(c) any projections provided are estimates made in good faith on

the basis of factual information and assumptions as set out

herein;

(d) in preparing the BR Plan, the BR Practitioner has not

undertaken an audit of the information provided to him by the

senior management of the Company and by the Company’s

Auditors, although where practical, the BR Practitioner has

endeavoured to satisfy himself of the accuracy of such

information.

Sipho Sono, in his capacity as the duly

appointed Business rescue practitioner

(in terms of the Act)

business rescue plan · 2020-07-06 · mediation and arbitration. it is a dispute resolution body...

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