National Department of Housing

Thubelisha HomesVoluntary Liquidation

Closure Progress Status Report

19 February 2014

Outline

• Terms of Reference• Background• “Voluntary Closure” in Context• Overview of Progress to Date• Settlement with Provinces• Staff Matters• Legal Matters• Other Matters• Financial Position• Outstanding Matters

Terms of Reference

• This presentation sets out a synopsis of the closure process for Thubelisha Homes as contained in the Close Out Report dated 31 March 2012

• The presentation has been prepared by Learning Strategies on request from the National Department of Human Settlements

• Learning Strategies responded to an invitation to tender for the closure of Thubelisha and Servcon and was selected by the then National Department of Housing (NDoH) to facilitate the closure of Thubelisha Homes

Background

• The NDoH set about the establishment of the Housing Development Agency (HDA) in 2008 to acquire, develop and release suitable land for housing development

• Some of these functions were previously performed by Thubelisha and Servcon• A decision was taken by the NDoH to close these entities and service providers were

appointed to facilitate the closure process• Learning Strategies was appointed to assist with the Thubelisha Homes closure process

as a voluntary liquidation of the company• The closure process has extended over a number of years due to practical and legal

constraints, including delays and difficulties in reaching settlement with Provincial Departments and creditors, re-deployment of the staff of the company, alienation of land registered in the name of the company and numerous other constraints and decision delays

• The company was placed in Voluntary Liquidation on 29 March 2012 • This report presents an overview of the closure process and the accomplishments to

date as well as the outstanding matters to be finalised before final liquidation can be granted

“Voluntary Closure” in context• Any company can be closed voluntarily by its shareholders/directors or in terms of its

Memorandum of Incorporation• This assumes that the company will settle all its liabilities in this process• If there is a shortfall between assets and liabilities then the company would face forced

liquidation unless alternative funding is available• The closure of Thubelisha is a voluntary winding up of the company which assumes

either the company can settle all its liabilities or that Government will fund any shortfall• Voluntary closure can be accomplished by ceasing to trade/operate, disposal of assets,

settling liabilities and terminating all commitments including obligations to staff• The company must be free of all assets and liabilities and cannot be finally liquidated

until assets and liabilities are disposed of• As a Non Profit Company, any surplus remaining after the closure of Thubelisha will

need to be applied in terms of the companies Memorandum of Incorporation, normally for a similar purpose as that of the company before closure

Overview of Progress to Date

• 2008 - Decision to close Thubelisha and Servcon• March 2009 – Closure Plan accepted• July 2009 – Operations of Thubelisha discontinued and voluntary

severance packages offered• Aug 2009 to March 2010 – Thubelisha Closure Team in place• March 2010 – CEO resigned and Closure Team terminated• March to June 2010 – Redeployment of remaining staff• 2010 – All contracts terminated and all moveable assets transferred• 2010 and 2011 – Reconciliation and settlement with all Provincial

Departments• 2010 and 2011 – Legal matters defended and settlement with creditors• 29 March 2012 – Placed in Voluntary Liquidation • 20 July 2012 – Liquidator appointed• 2012 and 2013 – Remaining contractor dealing with land transfers

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Settlement with Provinces

• All projects were terminated by 31 March 2010• Detailed reconciliations were negotiated with all Provinces • Settlements were agreed with certain contractors where liability could be

proven• All funds remaining with Thubelisha were returned to Provincial

Departments as part of the final settlement• There are no further or on-going responsibilities between Thubelisha and

Provincial Departments

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Staff Matters

• The closure process was accomplished without any forced retrenchments as per the Minister’s requirements

• Voluntary severance packages were paid in July 2009• Some staff redeployed to the HDA in July 2009• Balance of staff were eventually redeployed to Provinces or the National

Department between March and June 2010• All redeployed staff initially received 1 weeks pay per year of service as a

partial retrenchment and compensation for redeployment. This was paid in August 2009

• In order to align the retrenchment packages between Servcon and Thubelisha, an additional week per year of service was paid in March 2010

• There are currently no staff employed by Thubelisha

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Legal Matters

• Various legal matters have been dealt with during the closure process• All have been settled or successfully defended as required. Key matters

include :– Verern Construction – Liability agreed and settled– Stimela Developers – Claim by KZN Contractor for loss of profits – Defended as

claimant could not prove the claim– Sobambisana – Claim and counter claim agreed and settlement achieved with

assistance of Western Cape Provincial Government– Ibuyile – Claim and counter claim agreed and settlement achieved with

assistance of Western Cape Provincial Government– Dirkale – Liability agreed and settled– Chatty 600 Emerging Contractors – Settlements agreed by negotiation– Western Cape Provincial Government – no formal claim submitted. Detailed

account of reconciliation provided– Metro Builders – Claim intimated by Metro but never submitted to Thubelisha.

Thubelisha has never had a contractual relationship with Metro Builders.

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Land Transfers

• The land transfer issue is the single matter still delaying the final liquidation of Thubelisha

• The company cannot be liquidated until all land registered in its name is transferred

• There were a total of some 700 stands originally identified• After initial transfer, 323 problematic stands remained

– 149 have been transferred– 37 more are ready for transfer– 102 stands in Doornkop, Gauteng, are held up pending the lifting of a

moratorium on transfer due to stands being below the flood line– 54 stands in Khayelitsha, Western Cape, are held up by the City of Cape Town

refusing to issue rates accounts or certificates – 4 vacant stands in Khayelitsha are actually roads and need to be dealt with by

the City– 12 more stands in Cape Town have to be sold and transferred

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Land Transfer Summary

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Transferred Ready for Transfer Transferee still to be resolved

Title Deeds Lodged

Received Rates

Certificate

Awaiting Rates

Certificate

Awaiting Rates

Amount to be paid

Mother Deed

Vacant Land Other Total

Thubelisha Properties Western Cape Transfer Position 19 February 2014KHAYELITSHA 110 54 4 12 180

Thubelisha Properties Gauteng Transfer Position 19 February 2014

Emdeni 13 1 14

Symune 0

Klipoortjie 0

Katelong 12 12

Doornkop RDP 36 24 42 102

Vosloorus Ext 2 3 3

Vosloorus Ext 3 7 7

Vosloorus Ext 7 4 1 5

Total Gauteng 39 0 0 37 0 0 24 43 143

Grand Total 149 0 0 37 54 4 36 43 323

Summary Total 149 37 54 83

Other Matters

• All assets of the company (mainly furniture and computer equipment) have been recovered and distributed to schools, the HDA and Provincial Departments

• All contractual relationships have been terminated with the exception of IT services and a printer rental which will be terminated once all land is transferred

• The company no longer incurs any other monthly costs for facilities or offices and makes use of an office at the service provider at no cost

• Thubelisha overpaid PAYE in the final month before closure in the amount of R 1 074 665. SARS has acknowledged this liability but has not returned the funds

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Financial Position

• The Financial position of Thubelisha at the time of closure was precarious with significant losses recorded and substantial liabilities anticipated

• The closure process has successfully negotiated settlement of all liabilities and reached agreement with all Provinces on the project reconciliations and return of remaining funds

• The closure process also negotiated approval for implementers fees and project management fees amounting to R 142 m

• The result is that Thubelisha has been able to cover all of its closure costs (except for specific closure grant funding of R 16,2m) and convert an accumulated deficit of R 166m into an accumulated surplus of R 46.4m

• The Financial results and annual report have been audited on an annual basis during the closure process with no adverse audit findings

• The historical and current results for Thubelisha during the closure process are set out below

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Financial Position – Income Statement

INCOME STATEMENTFor the year ending 31 March December March March March March March Cumulative

2013 2013 2012 2011 2010 2009 2009 to 2014R R R R R R R

Revenue from construction contracts - - - - 242,872,168 480,250,759 723,122,927

Cost of Sales - - - - (211,427,651) (429,692,529) (641,120,180) - - - 31,444,517 50,558,230 82,002,747

Project Management Fees - - - 93,397,511 22,295,689 27,059,632 142,752,832

Gross Surplus for the Year - - - 93,397,511 53,740,206 77,617,862 224,755,579

Other Operating Income 97,273 328,418 9,828,930 7,608,785 16,558,440 65,452,510 99,874,356

Operating costs (1,602,162) (2,823,468) (4,511,397) 28,417,280 (16,878,899) (153,620,035) (151,018,680) Audit Fees - (50,000) (239,400) (250,800) (1,115,740) (1,000,000) (2,655,940) Building Expense - - - (273,600) (1,734,061) (7,582,195) (9,589,856) Consulting Fees (728,517) (1,490,063) (2,199,830) (3,405,939) (1,451,446) (1,081,921) (10,357,715) Depreciation - - - - (216,214) (871,764) (1,087,978) Directors Fees - - - - (3,855,920) (420,060) (4,275,980) Fixed Assets Profit/(Loss) on sale - 26,000 26,000 - (1,300,829) 8,417 (1,240,412) Legal Fees - - (164,422) (5,173,849) (1,385,368) (817,087) (7,540,726) Off ice Equipment Rental - (24,438) (20,678) (23,003) (2,075,449) (2,143,755) (4,287,323) Staff Cost (826,215) (1,020,383) (929,538) (1,753,269) (20,166,080) (52,205,193) (76,900,678) Sundry Expenses (40,276) (124,267) (894,086) (1,504,742) (33,478,180) (5,509,385) (41,550,936) Liquidator fees (100,000) - - - - (100,000) Provisions - - - 40,802,482 52,528,505 (74,569,437) 18,761,550 Travel and Accommodation (7,154) (40,317) (89,443) - (2,628,117) (7,427,655) (10,192,686)

Surplus / (Deficit) from operations (1,504,889) (2,495,050) 5,317,533 129,423,576 53,419,747 (10,549,663) 173,611,254

Investment income 1,881,531 2,301,901 2,303,834 2,566,136 3,327,557 3,418,828 15,799,787

Interest Payable - - 15,971,836 - (2,786,017) (5,518,164) 7,667,655

Government Grant Income - - - - 6,266,000 10,000,000 16,266,000 - - Net surplus / (deficit) for the year 376,642 (193,149) 23,593,203 131,989,712 60,227,287 (2,648,999) 213,344,696

Balance at Beginning of Year 46,052,555 47,593,488 24,000,285 (107,989,427) (168,216,714) (165,567,715)

Accumulated Surplus / (Deficit) 46,429,197 47,400,339 47,593,488 24,000,285 (107,989,427) (168,216,714)

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Financial Position - Balance Sheet

BALANCE SHEETas at 31 March December March March March March March

2013 2013 2012 2011 2010 2009R R R R R R

ASSETSNon-current assetsProperty and Equipment - - - - - 1,498,536 Intangible assets - - - - - 18,507 Total non-current assets - - - - - 1,517,043

Current assetsInventories 96,745 157,329 191,975 237,295 148,594,113 90,358,733 Trade and other receivables 1,176,613 8,160,501 7,876,860 7,884,370 2,583,770 129,478,200 Cash and cash equivalents 54,487,613 47,722,116 49,105,990 166,790,479 238,800,610 409,925,515 Total current assets 55,760,970 56,039,946 57,174,825 174,912,144 389,978,493 629,762,448

Total assets 55,760,970 56,039,946 57,174,825 174,912,144 389,978,493 631,279,491

EQUITY AND LIABILITIESCapital and reservesAccumulated defecit (3,570,803) (2,599,661) (2,406,512) (25,999,715) (157,989,427) (218,216,714) National government grant 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 Total surplus/(deficit) 46,429,197 47,400,339 47,593,488 24,000,285 (107,989,427) (168,216,714)

Non-current LiabilityInterest bearing borrow ings - - - - - 113,213,983

Current liabilitiesOperating lease rental smoothing reserve - - - - - 1,149,233 Trade and other payables 6,991,683 7,073,520 7,110,057 126,108,359 419,905,414 551,340,629 Provisions 2,340,090 1,566,087 2,471,280 24,803,500 78,062,506 133,792,360 Total current liabilities 9,331,773 8,639,607 9,581,337 150,911,859 497,967,920 686,282,222

Total equity and liabilities 55,760,970 56,039,946 57,174,825 174,912,144 389,978,493 631,279,491

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Outstanding Matters

• The remaining closure matters are – Finalise transfer of land still registered in the name of Thubelisha– Collect overpaid PAYE from SARS– Return retained funds to the KZN Provincial Department of Human

Settlements– Agree distribution of remaining funds and prepare final liquidation accounts– Submit liquidation and distribution accounts to the Master of the High Court

and receive final Liquidation Order– Distribute funds and close bank accounts

• The finalisation of this process is dependant on the co-operation and assistance of the City of Cape Town, the City of Johannesburg and the Gauteng Province for the finalisation of the land transfers

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