State-owned defence industrial group Denel has given the assurance that it will soon start legal actions to recover losses from fraud and misappropriation. These would be the result of several forensic investigations into the actions of the group’s previous management. The assurance was given in a press release issued on the last day of last month, after the Solidarity trade union had announced that it had initiated a process, under Section 165 of the Companies Act, to inquire into corruption and mismanagement by previous Denel board members.

In its statement, the union reported that Denel had told it that action against implicated people was being considered. But Solidarity had not had any confirmation that action was being taken. “Those responsible for Denel’s financial crisis are not being held accountable and they are getting off scot-free, while our members, innocent employees, have to bear the consequences,” stressed Solidarity deputy general secretary Johan Botha.

“We started with thorough investigations more than six months ago, shortly after the appointment of the new Denel board,” stated CEO Danie du Toit. “We have kept stakeholders, including Solidarity, informed about the progress we are making as recently as [the last] week [of July]. There is no need to take Denel to court to force it to investigate allegations of irregularities.”

Du Toit reported that he had received several reports, regarding potential fraud, irregular appointments and improper transactions, which had been forwarded to independent legal firms for review. These firms would also help Denel implement the consequent recommendations. He added that there were also other investigations, which were approaching their conclusion.

He assured that the group had already started taking corrective action. “It is completely untrue to allege that Denel has not taken actions to investigate transgressions and recover the money. We are in an advanced stage of investigations and there is no need to compel us to act through court action.”

He listed five actions that are, or soon will be, under way. Listed first was civil action against certain previous Denel executives to retrieve money lost because of the irregular granting of pilot bursaries. Second on the list was that Denel would soon submit a statement to the South African Police Service to lay complaints against those previous executives identified in the forensic reports. Third, a High Court application would soon be initiated to review contracts that Denel had entered into with VR Laser. Fourth, once legal recommendations had been received, disciplinary action would be taken against those Denel staff implicated in the forsensic reports. Fifth, once the total of the losses suffered by the group had been ascertained, civil action would be started against previous Denel executives to retrieve these losses.

Further, the President had already authorised the State’s forensic investigations and litigation agency, the Special Investigative Unit, to probe the alleged illegal appropriation of money and maladministration within Denel. Most probably, this would result in civil action to recover the funds.

In its response to Denel’s statement, Solidarity said: “These steps are a major breakthrough in our fight against tax abuse and State capture. We will keep a close eye on all assurances that had been given to make sure they are implemented.”

The union had also previously announced that it had served urgent court papers on Denel to force it to pay over taxes to the South African Revenue Service and the Unemployment Insurance Fund levies that had been deducted from employees’ June and July salaries, but not paid to the respective government agencies. This failure came on top of Denel having said that it could not pay its staff their full salaries in those months. (As it happened, a loan allowed the group to pay full salaries in June, albeit late; for July, it also managed to obtain the funding needed to fully pay its employees, but was only able to announce this about a week before pay day.) The union asserted that staff salaries were being used to subsidise the group’s cash flow.

Regarding the group’s difficulties in meeting its salary obligations in June and July, Du Toit stated that the company had kept its employees, the unions and other stakeholders informed about its financial situation and liquidity issues. “We are encouraged by the positive sentiments towards Denel expressed by government and looking forward to possible decisions on the recapitalisation of the company,” he affirmed.