Denel pays employees R318m in back pay after years-long battle

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  • Denel has paid R318 million in outstanding salaries after a two-year battle. 
  • The funds were raised from the surplus of a medical aid benefit trust for employees. 
  • The company now has in the region of R600 million for operational capital. 
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Troubled state-owned arms manufacturer Denel announced a major achievement on Thursday, paying all outstanding salaries with the proceeds of the surplus medical benefit trust and putting in place payment plans for the SA Revenue Service (SARS) and the company pension fund. 

As a result, trade union Solidarity – which had attached Denel's bank account and already auctioned some of its movable property – said it would release the arrangement and repay the auction's proceeds. Denel has been in the grip of a severe liquidity squeeze for the past three years, during which time a debt of R318 million to employees accumulated. 

Serobe said Denel received R992 million from the surplus at the end of July, most of which would be used for working capital, including future salaries. 

Board chairperson Gloria Serobe said that efforts to make use of the Denel Medical Benefit Trust, which had reached a 465% funding level, had been in the works for two years but had required court processes as well as the support of all parties, including pensioners, employees and the Department of Public Enterprises (DPE). The trust is a defined benefit scheme to fund obligations to employees who joined the fund before 2002. 

Serobe said: 

As a defined benefit plan, it made no sense why this trust was designed such that Denel, the sponsor company had no access to this large surplus, which as at April 2022 was as high as R1.472 billion and a 465% funding level.

To ensure the process was equitable, each stakeholder had an actuary to interpret the fund and protect them, producing "a win-win" outcome for everyone. 

"We are particularly grateful to the leaders of the Members Forums, the actuaries who carried us through this, the lawyers who had to balance all the parties, the commitment of DPE to our process, however long it took," she said.

Solidarity's Derek Mans said it had been a hard-fought battle to ensure employees were paid. 

"We don't think we would have been here if we didn't fight for it. There was a point at which it was not clear if the surplus would be used for the unpaid salary bill," he said. 

Asked whether Denel had sufficient funding for salaries going forward, executives said the company now had sufficient operational capital, until the end of the financial year. 

The company has also secured the services of former CEO Riaz Salojee as chief restructuring officer, with the aim of settling Denel on a sustainable path.

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