Private education in South Africa is increasingly viewed as a potentially lucrative industry, with some private schools flourishing into substantial business entities, amassing millions of Rand in profit. However, the sector is not immune to fiscal missteps, as illustrated by the financial debacle at the Ad Laudem Private School.
Recently, Judge Celeste Reinders of the Free State High Court issued a judgement against the school following its failure to meet an agreement with a benefactor. The agreement entailed a loan of R2 million, which the school subsequently defaulted on, failing to make the requisite first payment.
This contractual violation led the disgruntled investor to serve a notice under Section 345 of the Companies Act 71 of 2008. Ad Laudem remained unresponsive, neglecting both the notice and the overdue payment, leading the investor to initiate liquidation proceedings.
Simultaneously, allegations arose of the school’s failure to adequately compensate its staff, with some employees receiving as little as R400, R800, and R1,000 in monthly instalments. Further financial struggles emerged at the outset of 2023, as the school reportedly postponed the academic year’s commencement due to budgetary limitations.
This fiscal mismanagement eventually resulted in the South African Revenue Service (SARS) issuing a garnishment order against the school. These events culminated in the Free State High Court ruling in favour of the investor on 14 April 2023, placing the school under provisional liquidation.
The court has slated 1 June 2023, to hear arguments from various stakeholders and to deliberate whether the provisional order should be made final. The potential fallout includes the Free State Education Department’s relocation of students to two local schools in Bloemfontein and the risk of staff unemployment, barring specific interventions.
The ongoing saga has somewhat tarnished the image of South Africa’s private schools. Parents are rightfully concerned, having paid substantial fees for the promise of high-quality education, only to discover allegations of financial mismanagement that undermined educational services, staff payments, and the maintenance of school assets.
The judgement serves as a stern caution to those contemplating the establishment of independent schools, underscoring the importance of sound financial management.
BY Pieter Walter | Senior Associate
AND Yonwabisa Matshoba | Candidate Attorney