Business rescue process gives wings to SAA turnaround
With recent reports of SAA having reinstated insolvency cover on its tickets, and with global travel firm Flight Centre having lifted its suspension of the sale of seats on SAA flights, South Africans are starting to see the effect of the business rescue mechanism at SAA, and the potential for a turnaround at the ailing carrier.
In addition, with the labour court recently clearing the way for the business rescue practitioners to restructure the cash-strapped airline, it appears a path forward for SAA is slowly starting to gain traction. However, the commencement of a business rescue process on December 5 must be embraced by all stakeholders and accepted for what it is — a rescue process, warts and all.
The business rescue plan has as its objective the maximisation of the likelihood of the company continuing in existence on a solvent basis; or if it is not possible to do so, to achieve a position that would result in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.
On December 5 SAA was clearly teetering on the abyss of possible liquidation. Facing mounting pressure from trade unions and an unwillingness on the part of the government to commit to ongoing funding of the cash-strapped entity, the board of SAA had little choice but to place the national airline into a formal, statutory-driven restructuring through the business rescue process offered by chapter 6 of the Companies Act.
In Les Matuson and Siviwe Dongwana, two experienced business rescue practitioners, the reorganisation of the airline has rapidly advanced. In January and February, South Africans have seen further post-commencement finance (funding made available to a company in business rescue post-commencement of the process) being made available by the Development Bank of Southern Africa (R3.5bn), the realignment of airline routes both locally and internationally, and the potential of a structured downsizing of the SAA workforce (a natural and unfortunate consequence of any restructuring). The business rescue practitioners have been given a clear mandate by the board to independently administer and supervise SAA in an effort to control what was clearly a financial, and potentially operational, implosion.
Much has been made in the media about “ongoing interference” by the government and trade unions in the business rescue process, with reports suggesting that the business rescue practitioners cannot act independently when being dictated to by such parties. Recently, the government has been quite emphatic about intervening in the business rescue process if the restructuring “is not in the best interests of SAA”.
It is true that the Companies Act specifically allows shareholders (security holders) and employees (trade unions) to be consulted by the business rescue practitioners during the development of the business rescue plan. This makes sense, as the outcome of the SAA rescue process will either be SAA continuing to trade on a restructured basis, or being wound down, resulting in a distribution to creditors that is better than liquidation. Shareholders, employees, trade unions and creditors are all invested in the outcome and should be entitled to consult with the practitioners and participate and contribute to the development of the SAA business rescue plan.
The practitioners are also entitled to consult the creditors of the company (represented by the creditor committee) in the development of the business rescue plan. This has already happened, with several meetings having taken place with the representatives of the SAA creditors’ committee.
Notwithstanding the ability to consult with stakeholders, the Companies Act makes it clear that the business rescue practitioners are obligated to act independently and, like a director, must act in the best interests of the company. Ultimately, their rescue plan will reflect the extent of their independence in the finalisation of SAA’s restructuring.
The practitioners’ directives are clearly set out in section 7(k) of the Companies Act — business rescue is aimed at providing for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders. The finalisation of the business rescue plan is believed to be imminent, and it should be available for the consideration of all stakeholders by the end of February.
SAA’s business rescue, whatever form it ends up taking, will no doubt become the test case for other state-owned enterprises (SOEs) that are being considered for an independent restructuring route. If successful, there is no reason Eskom, Denel, the SABC and other financially distressed SOEs should not become part of the formal rescue process now available through chapter 6 of the Companies Act.
• Dr Levenstein is director and head of the insolvency, business rescue & restructuring department at Werksmans Attorneys.