Picture: REUTERS/SUMAYA HISHAM
Picture: REUTERS/SUMAYA HISHAM

Justice Moroa Tsoka once said: “Business rescue proceedings are not for the terminally ill … nor are they for the chronically ill. They are not for the critically ill.” In the case of SAA, the state-owned airline’s heart stopped beating years ago and has since been defibrillated by the taxpayer.

SAA was never a good candidate for business rescue. This is evidenced by it not being able to trade itself to liquidity without relying on post-commencement financing (PCF) of R10.5bn — at the taxpayers’ expense. The latest PCF is in addition to the R3.5bn that SAA received from the Development Bank of Southern Africa and other cash injections before it. What makes the government’s cash injection all the more outrageous is that it comes at a time when the administration should be more focused on saving the economy.

While much of the uproar has been over the billions spent to rescue SAA, the role of the business rescue practitioners in the debacle is often overlooked. There is a perception that business rescue processes are often initiated merely to stave off creditors; the SAA case substantiates this perception.

It is not easy to apportion blame. The SAA board circumvented the courts by placing the airline in business rescue by resolution, effectively side-stepping any judge who would have followed Tsoka’s dictum and ordered the entity to be liquidated. However, the appointed practitioners, Siviwe Dongwana and Les Matuson, failed in their duty at the first meeting of creditors by not advising the creditors and other stakeholders that SAA was not capable of being saved. In both instances, there was a gross neglect of the duty of good faith that the board and the practitioners, in terms of the Companies Act, are subject to. 

While the SAA board had already lost credibility due to its widely publicised lack of governance, the actions of the practitioners are concerning as they appear to have been milking the proverbial dead cow for every last cent. As at June 2020, they cashed in close to R40m for their efforts to save the airline.

While the practitioners were not responsible for the mess SAA found itself in, they became the custodians of governance as soon as they accepted their appointment

One can only wonder, considering that months have gone by since June and there are more to come until they hand the airline back to its board, how big their payday will be now that finance minister Tito Mboweni announced the provision that would be made to “create a new SAA”. In addition, Dongwana and Matuson showed a dereliction of duty by failing to take action against those responsible for the state of SAA — a duty placed on them by the Companies Act.

They have all the reason and evidence to do so against Dudu Myeni, who has been declared a delinquent director by the high court. Instead, they squandered R170m of the PCF on consultants, even as it was obvious that SAA could not be saved.

Governance is not an event; it is an ongoing process that does not stop when an entity is placed in business rescue. Practitioners are subject to the same standards as directors under the Companies Act. That there was already an absolute breakdown in governance before SAA went into business rescue does not absolve the practitioners from ensuring good governance.

The question is, what should Dongwana and Matuson have done to discharge their duty in good faith? First, they should not have tried to retrench the staff of SAA without including this process into the business rescue plan. This led to a drawn-out court process they eventually lost, again costing the airline dearly in legal fees.

Secondly, SAA’s financial position and dismal state was common knowledge. The practitioners’ insistence, without any credible evidence, that SAA could be saved was their first dereliction of duty. SAA should have immediately been placed under liquidation — a prerogative that was well within their rights. Instead, they opted to entertain the government’s conceit.

Once SAA was placed in business rescue, the government could not legitimately dictate to the practitioners whether it may be liquidated, yet, on the government’s instruction, they failed to apply for liquidation. These actions are a further dereliction of their duties as the Companies Act requires them to be independent. Had the practitioners applied to the courts for SAA’s liquidation, the government would have been within its right to oppose the application.

While the practitioners were not responsible for the mess SAA found itself in, they became the custodians of governance as soon as they accepted their appointment. They not only had a duty to uphold governance in terms of the Companies Act, they also had a duty to uphold it for the citizens and taxpayers of SA.

By reallocating funds from causes such as basic and higher education, health (during a pandemic, no less), the police, transport and human settlements, the message the government conveyed, whether wittingly or not, was that its vanity project is more important than the citizens of this country — and the practitioners seem to sing to this tune.

• Specht, an attorney, is acting industrial relations & legal services executive at the Steel and Engineering Industries Federation of Southern Africa.

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