In a briefing following a recent Cabinet meeting, Minister in the Presidency, Jackson Mthembu, announced that black partners in the SAA business rescue will be announced soon. The national carrier’s rescue practitioner, Les Matuson, will be working with the equity partners and Mthembu also expressed confidence that the decision to place South African Airways under business rescue and allocate an additional R2 billion to SAA, “will assist in repositioning the national airline into a stronger, competitive entity that will gain confidence of all South Africans”. Judging from comments from businesspeople and other flyers, confidence is not what passengers have in SAA. A fellow journalist had to extend her trip to Vietnam as she could not get any confirmation from the airline on whether her flight back will actually take off and there are many comments on Twitter of passengers with similar experiences. Those that are not so outspoken have quietly moved to other airlines where they have more certainty that the flights that they book months ahead, will actually take off and bring them back. It raises the question of whether confidence in SAA could be restored. And where will the unfamiliar flight path that the national carrier is following, lead to? Professor Maleka Femida Cassim unpacks the next step for SAA in The Conversation. – Linda van Tilburg
South Africa in unfamiliar terrain as national carrier goes into business rescue
By Maleka Femida Cassim
South Africa’s national carrier, South African Airways, has been placed in voluntary business rescue. It’s an historic moment as it’s the first business rescue attempt of a state owned entity. The decision places the country in unfamiliar territory – politically, economically and legally.
What happens next will determine whether the decision was the right one or not. A great deal rides on Les Matuson, the man appointed the business rescue practitioner. The business rescue practitioner is key to the success of the rescue process. His personal qualities of integrity, independence, professional skill, and expertise are vital factors.
The airline’s board of directors appointed Matuson as the business rescue practitioner. This had trade unions up in arms, as they were not consulted.
Legally, the power to appoint the rescue practitioner depends on how the business rescue came about. In this case, given that the airline went into voluntary business rescue, the board had the sole power to appoint the practitioner.
$7,000 roundtrip to Ghana and it’s not first class?? Lol the Devil is a lier South African airways is mad
— YAW (@YawAsiedu_) December 10, 2019
The process would have been different if it had been as a result of a court order. For example, if a court had ordered the business rescue at the request of the trade union Solidarity and other unions, then the trade unions would have nominated a business rescue practitioner of their choice and the appointment would have been made by the court.
But will the rescue work, or is it too late. After all, the airline is in dire financial straits, with its liabilities exceeding its assets by about R 13-billion. The Companies Act stipulates that for a business rescue the company must be in financial distress or near insolvency. If it is already insolvent, it is too late.
There are lots of burning issues raised by the business rescue that hasen’t yet been tested in South Africa. Many will no doubt land in the courts where those presiding over cases will also be walking unfamiliar territory.
One possible outcome still remains: that the airline will be shut down. If the practitioner finds that there is no reasonable prospect of a successful rescue, he is duty-bound to have the airline liquidated.
Where the power lies
The business rescue practitioner has wide powers over the company. The board of directors continues to manage the company, but is subject to his control.
The practitioner’s fundamental task is to rehabilitate the airline by developing a suitable business rescue plan within 25 business days. This deadline may be extended by the court or the majority creditors.
In drawing up the business rescue plan, the practitioner must consult with management, creditors, trade unions and the government shareholder. But the practitioner cannot be dictated to by any stakeholder. He has a duty to act impartially, independently, and in the interests of South African Airways. In theory, this also means that the government, as the airline’s shareholder, no longer has any legal control over its business.
South African Airways @flysaa Please refund Noxolo Mkhize. You can't keep mistreating and canceling on customers like this. Please. pic.twitter.com/svVv4z1P6e
— Taj Astrid Jele (@EccentricTaj) December 17, 2019
Once the business rescue plan has been drawn up, it must be voted on by creditors. This gives creditors a decisive say over the future of the airline.
There is a dual voting requirement for the business rescue plan. It must be approved by more than 75% of the creditors and at least 50% of the independent creditors.
The employees of the airline will also have voting rights as creditors, to the extent of any unpaid salaries and wages that were owed before business rescue began.
The interests of shareholders in business rescue are subordinate to those of creditors and employees. As the shareholder, government does not have a right to vote on the business rescue plan, unless its shareholder rights are altered by the plan. This could happen, for example, by introducing a new shareholder as an investment partner. If shareholder rights are affected, the plan must be approved by the shareholder at a separate meeting.
Once approved, the business rescue plan becomes legally binding or “crammed-down” on all the stakeholders – whether or not they agreed to it. Government as a shareholder is also legally bound. The practitioner must then proceed to implement the plan.
Role of government as a creditor
An important and undecided issue is whether the government qualifies to vote on the business rescue plan as a creditor.
Government has recently undertaken to provide a loan of R2-billion to the airline as post-commencement financing. This means new financing given to a company in business rescue. Post-commencement financiers get preference on their claims. But the Companies Act is not clear whether they have a right to vote as creditors on the business rescue plan. This will have to be decided by the courts.
Waiting. I need south african airways to compensate me for all the hassles i have gone through since i landed at Lusaka last night. I will send you my bill of items and pls compensate me. It was not my fault and it's entirely SAA which is responsible for this mess.
— Alok Jain (@alokmjain) December 12, 2019
Even if the government is a creditor, would it qualify as an “independent” creditor? An independent creditor’s vote on the business rescue plan is weightier than other creditors. Furthermore, only independent creditors may sit on the creditors’ committee. This committee has the power to consult with, though not to instruct, the practitioner on the business rescue plan.
The Companies Act is also unclear on this issue. It will be for the business rescue practitioner to decide. This may ultimately fall to the courts too.
Rights of trade unions and employees
From the employees’ perspective, it’s more beneficial to place a company under business rescue than to liquidate. The South African business rescue regime is strongly pro-employee.
Employees continue to be employed during business rescue. Any changes to their employment terms and conditions must be by agreement.
They have preferential rights to be paid all salaries, wages, and other employment-related payments that become due to them during business rescue. Employees rank in the queue before other creditors. They are paid immediately after the business rescue practitioner’s remuneration and expenses. Even if business rescue is superseded by liquidation, employees retain these preferential rights.
Trade unions and employees have the right to be consulted by the practitioner, and to form a committee of employees’ representatives. Any retrenchments are subject to labour legislation, even if they form part of the business rescue plan.
- Maleka Femida Cassim, Professor of Company Law, University of Pretoria. This article is republished from The Conversation under a Creative Commons license. Read the original article.
