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Machanik talks nonsense

Dec 07 2012 10:06 *Marc Ashton

The latest edition of Finweek magazine.

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DON'T get me wrong – as an entrepreneur who has cut more than his fair share of corners in trying to get a business off the ground, I understand that there is a very fine line between “risk taking” and “rule breaking”. However, what Wendy Machanik did was break the rules and it is fundamental that South African entrepreneurs understand why. 

Writing an opinion piece for Business Day, Machanik apologised and took some responsibility for her actions. 

Basically she said that she dipped into the company Trust account to the tune of R17m, but it was okay because the primary reason was to secure jobs for her employees as the business faced a downturn. 

Noble I’m sure but she is either delusional, a liar or simply misguided. 

If you read her opinion piece, she says she accessed the Trust account 90 times over a three-year period and she also put her own money into the business over this period of time. In mitigation she argues that she actually returned all the money by 2010 and there was a surplus of R1.2m in the Trust account. Notably she said that at the peak of her business, Wendy Machanik Properties (WMP) was turning over R130m a month and employed over 300 people. 

These are the only numbers you need to understand. 

  • R130m in turnover divided by 300 employees implies the “cost” per employee is R433 000. Assuming that those employees are actually agents, she argues the whole reason she had to take money is because the property industry was collapsing. That cost would have been a variable cost in line with actual property deals done. Admittedly, this calculation is very simplistic and doesn’t reflect the real position of the business – what it should reflect though is a company that didn’t plan during the good years. I can guarantee that 300 employees were not averaging R430 000 a month.
  • A billion rand a year business should have no issue approaching its financiers for R17m in short-term funding.
  • By dipping into the Trust account 90 times in a three-year window implies that WMP couldn’t plan its cash flow by more than 13 days at a time? Surely they jest. 

It is absolutely impossible that a board of directors and the auditors (reportedly Darryl Sklar & Associates) could have missed 90 transactions in three years. If the company needed money every 13 days, then surely it had to have been trading recklessly?

Either the directors or auditors should have flagged something along the way. 

This is wrong on so many levels of corporate governance. 

Machanik argues: “Looking back now I know what I should have done. I should have allowed the company to fold, declared bankruptcy, and walked away. But I couldn’t allow myself to do that. I felt it was my responsibility to my employees and their families they were supporting. So I did the unthinkable. I accessed the trust account in order to save the business.” 

Rubbish – the property market didn’t suddenly boom again in 2010 and give you breathing space to put a surplus back in the Trust account. 

Based on the numbers Machanik put into the public domain in this opinion piece we can only conclude that this is a business that was pillaged and defrauded. There were no management controls put in place, the business (and Trust) accounts were treated as a personal piggy-bank and ultimately Machanik burnt the very stakeholders she claims to have been protecting.

*Marc Ashton is the editor of Finweek. Follow him on Twitter @zamarcashton

 
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