Report to the Portfolio Committee on Human Settlements on the closure of Servcon Housing

Solutions (Servcon)

26 February 2014

Table of contents

1. Background2. Staff3. Cash flow challenge4. Sale of land assets5. Conclusion

1. Background• The Servcon was established as a joint venture between the government and the banks.• Both parties held an equal shareholding and the mandate period of the entity was set for 8 years from 1998 until 2006.• In 2006, the company became wholly owned by government as the banks resolved to exit the arrangement.

1. Background

• The last Minister of Housing has resolved to close the Servcon, as part of the rationalisation of the public entities.• The Minister approved the implementation of a closure plan in February 2009.

1. Background…

• The Minister appointed Ms F Matlatsi as the interim Managing Director of the company on 30 November 2012 to finalise the closure of the entity.

2. Staff • There are no permanent staff members remaining.• The Servcon employs 4 staff members on a month to month contract until the closure is finalised.• The staff members are the Chief Financial Officer, the manager of the original mandate, the IT administrator and the accountant.

3. Cash flow challenge

• The Servcon discontinued all new business operations following the approval of the closure plan.• The Servcon has prioritised the collection of outstanding revenue and the settlement of the outstanding debts and liabilities since 2009.

3. Cash flow challenge…

• The Servcon only have portions of land and landed properties that can be sold to generate cash to settle the outstanding liabilities.• The most significant remaining debt is the tax liability (R13,401,049.99 as at 1 April 2013.)

3. Cash flow challenge… • The running costs consist of salaries of the staff and other administrative costs such as the external audit fees, payroll administration and printing costs. • The Department paid R1.5 million during the 2013/14 financial year on behalf of the Servcon for audit fees, payroll fees and the salaries of the remaining staff members.

4. Sale of land assets

• The Servcon concluded a sale agreement on 26 February 2013 with the Housing Development Agency (HDA) for the sale of 5 properties for R27.7 million.

4. Sale of land assets… • The properties are as follows:

No. Property description Province Value

1. Erf 2663 & 1826 Queenstown Eastern Cape R3,500,000

2. Ptn 237 of 78 Farm Hartebeespoort No. 328 JR – Tshwane

Gauteng R9,850,000

3. The farm Eloffspark No. 772 – Tshwane

Gauteng R7,100,000

4. Erf 10509 Philippi – Cape Town

Western Cape R2,230,000

5. Rem Farm 755/2 Machiel Heyns

Western Cape R5,000,000

Total R27,680,000

4. Sale of land assets… • The transfer of erf 2663 & 1826 in Queenstown, Portion 237 of 78 Farm Hartebeespoort No. 328 JR and erf 10509 in Philippi was finalised in August 2013. • An amount of R9,000,000 was transferred to the South African Revenue Service (SARS) on 8 August 2013 and a further amount of R3,080,000 was transferred on 20 August 2013.

4. Sale of land assets… • The tax liability was reduced to R1,694,729.04 at 1 September 2013, as a result.• The transfer documents for the transfer of EloffsPark No. 772 was lodged with the Deeds Office on 5 August 2013. The Deeds Office rejected the transfer citing an outstanding approval from the Department of Agriculture and the municipal consent.

4. Sale of land assets…

• The transfer documents were lodged again with the Deeds Office on 12 December 2013. • The transfer was again rejected. • The transferring attorney is currently discussing the matter with the examiners and the Registrar of the Deeds Office.

4. Sale of land assets… • An error with the recorded extent of the Machiel Heyns property was detected by the Deeds Office. • The matter is being investigated by the Deeds Office and the Surveyor General.• The tax liability is interest bearing. • The tax liability is R2,219,652.42 as at 27 January 2014.

4. Sale of land assets…

• The Servcon will be in a position to settle the outstanding tax liability once the transfer of the properties is finalised.• Once the tax liability and the other outstanding operating expenditure of the Servcon is settled, the entity will be in a position to submit an application to the

4. Sale of land assets…

Master of the High Court for the appointment of a liquidator to liquidate the Servcon through a voluntary liquidation process.

5. Conclusion

• The Servcon must continue to facilitate the transfer of the remaining two properties (EloffsPark No. 772 and Rem Farm 755/2 Machiel Heyns).

• Once the tax liability and the outstanding operating expenditure is settled, the entity will be able to make and application to the Master of the High Court to appoint a liquidator to finally wind-up the Servcon.

5. Conclusion…

• The liquidation will involve the disposal of the remaining property portfolio of the Servcon.

• It is currently estimated that the Servcon will be finally wind-up by 31 March 2015.

THANK YOU

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