A South African Airways aircraft on the apron of Frankfurt Airport in 2018.
Silas Stein/picture alliance via Getty Images
- The clock is ticking for the DPE to try and find a suitable strategic equity partner for the airline.
- This partner would have to be willing to put in at least R10.3 billlion as a start, to implement the rescue plan – and the airline would likely still run at a loss for some time.
- Employees’ contracts are automatically suspended on granting of a liquidation order – no work and no pay.
- Liquidation could also result in an insolvency inquiry – “a very powerful means of subpoenaing documents and interrogating witnesses”, which could mean a detailed probe into the reasons for the airline’s failure.
- The business rescue plan states that the liquidation process could take years. Post-rescue commencement creditors are likely to only receive their final dividend after several years, while concurrent creditors will not receive a dividend. The liquidator would be entitled to an estimated R369 million based on the realisation of the assets.
Could
the “unthinkable” happen and South African Airways be liquidated
after all?
The
Department of Public Enterprises issuing a statement on Thursday morning to
discourage the state-owned flag carrier’s creditors – which includes employees
– from making any decisions that could lead to the winding down of the national
carrier and disposing of its assets.
But
the question lingers.
On 25 June 59% of creditors voted
for an adjournment until 14 July to vote on a proposed business rescue plan,
with unions saying they wanted more time to come up with a better plan.
The clock is ticking for the DPE
to try and find a suitable strategic equity partner for the airline. This partner
would have to be willing to put in at least R10.3 billion – as a start – to
implement the proposed plan, which still foresees the airline continuing to
operate at a lost for a few years to come.
But what would it mean if no
other option remains for the practitioners but to “discharge” the
business rescue process and open it up for either themselves or a creditor to
apply for liquidation?
Firstly, employees’ contracts are
automatically suspended upon the granting of a liquidation order – no work and
no pay. Employees of SAA have in any event not been paid since May this year.
According to aviation economist
Joachim Vermooten, SAA’s assets mostly comprise its investments in Mango, SAA
Technical (which also owns some properties), Air Chefs, as well as A340
four-engine, wide-body aircraft, components and engines as well as trade
debtors and some cash deposits.
Furthermore, SAA leases most of
its aircraft and, accordingly in a liquidation, there will likely be limited
assets which can be realised for distribution to creditors. The rescue plan
also foresees that concurrent creditors will receive nothing in the case of a
liquidation.
This is not the case for four big
banks who have their total of R16.4 billion in loans to the airline guaranteed
by government. In liquidation, government will likely be called on to honour
these guarantees.
Insolvency enquiry
Alex Elliott of Elliott Attorneys
says it is also possible that the liquidators or major creditors might insist
on an insolvency inquiry, in order to investigate the reasons for the failure
of SAA.
“The insolvency inquiry
mechanism is a very powerful means of subpoenaing documents and interrogating
witnesses. If the evidence revealed in the enquiry is sufficient, the
liquidators or the creditors may institute claims against the recipients of
funds or property or institute claims against the directors for reckless
trading,” says Elliot.
“In the event that the
unions’ claims of systemic fraud and corruption throughout SAA and its
subsidiaries are justified, a liquidation could be viewed with some trepidation
by some of the former board members and managers within the SAA group.”
The ambit of the inquiry could
even extend to SAA’s subsidiaries Mango, SAA Technical and Air Chefs. By
contrast, there is no mechanism for such an inquiry in business rescue.
Zero
dividend either way?
A concurrent creditor of the
airline, who wants to remain anonymous, says it is probably true that
concurrent creditors will receive zero in a liquidation, but in his view,
concurrent creditors’ position in the business rescue plan is no different to
that of a liquidation based on the business rescue practitioners’ own version.
“The plan provides that
concurrent creditors will be paid 7.5 cents in the rand over a three-year
period, but if you interrogate the plan in further detail it is evident that
the plan is conditional. There are at least two conditions that legally cannot
be met by 15 July 2020 – one from a labour legislation perspective and the
other from a Parliamentary process perspective,” says the creditor.
“The financial forecasts
prepared by the business rescue practitioners indicates that SAA will continue
to trade commercially insolvent post-rescue and will in any event not be able
to pay concurrent creditors in the absence of further assistance from
taxpayers.”
In the view of the creditor, the
plan presents concurrent creditors only with “a conditional promise of
something in the future” and given the airline’s past performance, will
could very well end with concurrent creditors getting zero, just as would be
the case if the airline is liquidated.
Long
process
In the proposed rescue plan, it
is stated that, given the complexity of SAA, it is likely that a liquidation
would last longer than two years. It states that post-rescue commencement
creditors are likely to only receive their final dividend after several years,
while concurrent creditors will not receive a dividend.
In liquidation, employees would
be entitled to receive a maximum amount of R32 000 per employee to the extent
that there are funds available. Employees will only receive payment once the
final liquidation and distribution account has been approved at the end of the
liquidation process, which can take up to 24 months.
The estimated fees a liquidator
would be entitled to, as calculated by PwC, is approximately R369 million based
on the realisation of the assets.
