Durban’s premier networking club, which boasts the city’s wealthiest individuals and corporate entities as members, has entered into voluntary business rescue due to significant financial challenges.

Documents seen by The Mercury, which were sent to The Pencil Club’s members, indicate that the decision to initiate business rescue proceedings was taken during a meeting held on February 3.

During this meeting, the directors resolved that the business was in financial distress and might not be able to meet some of its obligations as they become due. The documents revealed that the club is expected to face ongoing financial struggles this year.

A letter, which The Mercury has seen, from the business rescue practitioners states that a meeting will be held on February 25, where they will address the directors, creditors, and staff regarding the way forward. However, one of the listed directors, Dheshan Pillay, declined to comment, saying they had no remarks at this stage.

Attorney Nike Pillay of Nike Pillay Incorporated, who is representing the club, confirmed that the establishment is entering voluntary business rescue.

He mentioned that there will be an engagement with the business rescue practitioners, who will brief the directors and employees on the way forward later this month.

“For now, it is business as usual,” he said, indicating that the club continues to operate.

Some members have alleged that the financial troubles of the club date back to June of last year, claiming that the club defaulted on a bond with a bank, which triggered legal action by the bank.

“I cannot speak to that; even if I have been briefed, the business rescue practitioners can comment,” Pillay said.

The Mercury reached out to the business rescue practitioners, who acknowledged receipt of the newspaper’s enquiry and said they would comment when the official in charge of the matter is available.

The documents reviewed by The Mercury detail the challenges faced by the club. One document said the directors reasonably believe the company is financially distressed, as it will be unable to pay all its debts as they become due within the next six months.

“The company has therefore voluntarily commenced business rescue proceedings immediately and will be placed under supervision in terms of section 129(1) of the Companies Act,” the document said.

In a sworn statement which The Mercury has seen, Dheshan Pillay detailed the company’s financial challenges.

The company reported an operating loss before tax amounting to millions of rand for the financial year ending February 2024 and experienced negative cash flow from operating activities for the period ending December 2024.

“The company is expected to face a cash shortfall for the remainder of 2025. It is estimated that under current market conditions, the company requires millions of rand to fund its working capital requirements, including the repayment of loans. However, the company is unable to raise such funds based on its balance sheet, and its shareholders are unwilling to provide any additional capital.

“Consequently, it appears unlikely that the company will be able to pay off all its debts as they become due within the next six months. Notwithstanding the above, the directors believe there is a reasonable prospect of rescuing the business if action is taken immediately and if the company commences business rescue proceedings,” the document said.

The developments have left lifelong members, who invested R1 million each in membership fees in the club, feeling cheated. A member of the club noted that its members include businesspeople, law firms, and auditing companies.

One life member expressed concerns about feeling misled, stating that the directors had not been upfront with the members regarding the financial challenges the business was facing.

“The fee for ordinary members is R80 000, which grants access to amenities, including the restaurant. However, members must pay for the use of facilities like the restaurant, and on the 22nd floor, there are meeting rooms, a gym, and a cigar lounge. Lifelong members pay a one-time fee of R1 million, which exempts them from the annual fee.”

“Additionally, 40 life members, who each invested R1 million, now stand to lose their investments.”

He accused the directors of acting unethically by failing to disclose a default notice issued by the bank.

“With members facing significant financial losses and the club’s future hanging in the balance, the situation raises serious questions about governance, transparency, and accountability at The Pencil Club.

“Managers continued to sell memberships to the tune of millions of rand when they knew they were in default with their bank. Some life members renewed their memberships without this critical information, and new members were recruited. I brought in other people who took up membership at R80 000 per person,” he said.

THE MERCURY