Group Five collapse may lead to closure of hundreds of subcontractors

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05-04-2019
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Cape Town - The collapse of Group Five, one of the biggest construction companies in the country, is having a knock-on effect on hundreds of subcontractors who are owed millions of rand and may have to close down. In 2016 Group Five was one of seven construction companies who were collectively fined R1.4 billion for their collusive practices in the construction of South Africa’s World Cup stadiums.

Group Five’s collapse could lead to thousands of job losses.

According to Moneyweb, Group Five’s stock, after 45 years of trading on the JSE, was suspended on March 12 after the company filed for bankruptcy protection, making it the fifth local builder to enter business rescue in less than a year. From a peak market value of R8.2billion in 2007, it was worth less than R100million when the shares stopped trading.

According to Group Five spokesperson Heidi Geldenhuys, Group Five Construction and its direct and indirect subsidiaries reflected an operating loss of about R1.23billion for the year ended June last year, adding that the company experienced negative cash flow from operating activities of R880million last year.

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“Because of its inability to source funding, Group Five found itself financially distressed in that it was reasonably unlikely that Group Five Construction would be able to pay all its debts as they fall due and payable within the immediate six months,” Geldenhuys said.

The company is meeting with creditors, including subcontractors, across the country to explain its situation and get a sense of how many subcontractors it owes money to.

In Cape Town, the company held a business rescue meeting on Thursday with contractors and suppliers at the construction company’s plant in Plumstead. More than 100 people attended the meeting, chaired by business rescue practitioner Peter van den Steen.

Along with David Lake from Metis Corporate Advisory, they have to facilitate the rehabilitation of the company.

According to the business practitioners, the company was put into business rescue on March 11.

Here it was heard the completion of four new schools in the Western Cape as well as a stretch of road between Caledon and Riversonderend would be delayed due to the financial collapse of the company. One of the schools under construction is Woodlands Primary in Heideveld.

Four disappointed Cape Town-based contractors said: “Between us we stand to lose R2million because we are not getting paid this month.

“We will be forced to let at least 40 workers go. We are busy finishing four schools in Cape Town that are nearly completed We won’t be able to complete the schools.”

Suppliers and contractors who attended the briefing were in agreement that the negative effects would be immense and millions of rand would be lost, with companies suffering irreparable financial damage.

Geldenhuys said the company wasn’t able to say how many subcontractors were affected.

The contractor at the helm of the completion of the stretch of road between Caledon and Riviersonderend, which is adding passing lanes and pavement shoulders to the road, wanted clarity on whether he should proceed with the project.

Van den Steen said there is a moratorium that prevents anybody from taking legal action against the company or any other acts of enforcement.

In terms of the act, anything that is due, payable or owed to creditors is frozen. Siphesihle Dube, spokesperson for Transport and Public Works MEC Donald Grant, said: “The department is aware of this issue and is carefully monitoring the situation.”