The state of Labat Africa has deteriorated since the Johannesburg Stock Exchange suspended its securities over dividend declaration matters.
The investment holding company admitted that its board failed to account for the impact of issuing about 900 million additional shares after declaring its maiden dividend.
The additional dividend materially increased the amount it was required to pay shareholders.
READ: JSE wins disclosure fight as tribunal upholds Mantengu censure
Suspension drags company performance
The board revealed that the financial position of the company has deteriorated since the suspension of its securities, with creditors and funding providers withdrawing or reducing facilities, requiring repayment or restricting access to working capital.
This has reduced the company’s ability to incur additional debt to meet the outstanding dividend obligation. The company revealed that the changed circumstances also meant that it could not borrow its way out of the dividend problem.
According to legal advice obtained by the company, once it no longer reasonably appeared that Labat would satisfy the solvency and liquidity test immediately after making distribution, it was prohibited from paying the dividend.
The board said it considered the company’s financial position and applied the solvency and liquidity test required by the Companies Act before concluding that the proposed distribution could lawfully be made.
Company declared 900 million more shares
“Following the declaration, the company issued approximately 900 million additional shares. Those shares fell within the applicable dividend timetable and ranked for the declared dividend. The resulting increase in the dividend obligation was material and was not contemplated when the original solvency and liquidity assessment was undertaken.
“The board acknowledges that it failed to appreciate the effect of the additional share issue on the dividend obligation. The legal opinion obtained by the company records that this resulted in the distribution contemplated being materially different from the distribution subjected to the original assessment, with the issue engaging the directors’ duties under section 76(3)(c) of the Companies Act,” the board said.
READ: JSE censures SA, Eswatini state-owned joint venture over compliance failure
The company argues that the failure to pay was not a discretionary decision by the board to withhold money from shareholders.
The board says taking on substantial additional debt primarily to fund the dividend could further weaken the company’s solvency and liquidity and affect its ability to meet other financial and operational obligations.
Ongoing conversation to solve the issue
Labat has also acknowledged that its earlier communications to the market created an expectation that the dividend would be paid in full. It said previous announcements and correspondence with the JSE did not accurately record the operative legal position and accepted responsibility for correcting the market record.
“The Company will engage with existing creditors and funding providers regarding the restoration or restructuring of appropriate working-capital facilities and will continue to evaluate alternative funding and strategic investment opportunities that can strengthen the Company without creating an unsustainable debt burden,” said Labat.
- The state of Labat Africa has deteriorated since the Johannesburg Stock Exchange suspended its securities over dividend declaration matters.
- The investment holding company admitted that its board failed to account for the impact of issuing about 900 million additional shares after declaring its maiden dividend.
- The additional dividend materially increased the amount it was required to pay shareholders.
- READ: JSE wins disclosure fight as tribunal upholds Mantengu censure Suspension drags company performance The board revealed that the financial position of the company has deteriorated since the suspension of its securities, with creditors and funding providers withdrawing or reducing facilities, requiring repayment or restricting access to working capital.
- This has reduced the company’s ability to incur additional debt to meet the outstanding dividend obligation.
The state of Labat Africa has deteriorated since the Johannesburg Stock Exchange suspended its securities over dividend declaration matters.
The investment holding company admitted that its board failed to account for the impact of issuing about 900 million additional shares after declaring its maiden dividend.
The additional dividend materially increased the amount it was required to pay shareholders.
READ: JSE wins disclosure fight as tribunal upholds Mantengu censure
The board revealed that the financial position of the company has deteriorated since the suspension of its securities, with creditors and funding providers withdrawing or reducing facilities, requiring repayment or restricting access to working capital.
This has reduced the company’s ability to incur additional debt to meet the outstanding dividend obligation. The company revealed that the changed circumstances also meant that it could not borrow its way out of the dividend problem.
According to legal advice obtained by the company, once it no longer reasonably appeared that Labat would satisfy the solvency and liquidity test immediately after making distribution, it was prohibited from paying the dividend.
The board said it considered the company’s financial position and applied the solvency and liquidity test required by the Companies Act before concluding that the proposed distribution could lawfully be made.
“Following the declaration, the company issued approximately 900 million additional shares. Those shares fell within the applicable dividend timetable and ranked for the declared dividend. The resulting increase in the dividend obligation was material and was not contemplated when the original solvency and liquidity assessment was undertaken.
“The board acknowledges that it failed to appreciate the effect of the additional share issue on the dividend obligation. The legal opinion obtained by the company records that this resulted in the distribution contemplated being materially different from the distribution subjected to the original assessment, with the issue engaging the directors’ duties under section 76(3)(c) of the Companies Act,” the board said.
READ: JSE censures SA, Eswatini state-owned joint venture over compliance failure
The company argues that the failure to pay was not a discretionary decision by the board to withhold money from shareholders.
The board says taking on substantial additional debt primarily to fund the dividend could further weaken the company's solvency and liquidity and affect its ability to meet other financial and operational obligations.
Labat has also acknowledged that its earlier communications to the market created an expectation that the dividend would be paid in full. It said previous announcements and correspondence with the JSE did not accurately record the operative legal position and accepted responsibility for correcting the market record.
“The Company will engage with existing creditors and funding providers regarding the restoration or restructuring of appropriate working-capital facilities and will continue to evaluate alternative funding and strategic investment opportunities that can strengthen the Company without creating an unsustainable debt burden,” said Labat.
