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Has SAA's rescue plan become unimplementable?

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Has SAA's rescue plan become unimplementable?

6th January 2021

By: News24Wire

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The rescue practitioners of South African Airways (SAA) could still end up having to say that the state-owned airline's rescue plan is not financially viable anymore and unimplementable.

Then they would be forced to liquidate the airline because the business rescue process could not serve its purpose anymore, said Gideon Slabbert, a business rescue practitioner at Turnaround Rescue Solutions

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That was why, in his view, the core question of SAA's business rescue process currently should be whether it still made sense.

SAA's creditors accepted the rescue plan in July 2019 and Finance Minister Tito Mboweni allocated R10.5-billion - taken from various other budgets - for implementing the plan.

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The rescue practitioners have locked out members of the SAA Pilots' Association (SAAPA) since 18 December to try and "force" an agreement to cancel its current regulating agreement and accept new terms of employment. An employer is not obliged to pay salaries from the date of a lockout. 

Furthermore, unlike other unions represented at SAA, the SAAPA, as well as the National Union of Metalworkers of South Africa (Numsa), and the SA Cabin Crew Association (SACCA) have not yet signed an offer of three-month salaries as full and final settlement of about eight months of accumulated unpaid salaries.

Numsa and the SACCA, which, together, represent the majority at SAA, rejected what they regarded as an attempt to deny workers the remuneration they were entitled to.

The Department of Public Enterprises, SAA's shareholder, indicated there simply was no more money than for the three months it was offering.  

Towards the end of last year, the department provided R1.5-billion from which payouts are already being made to members of those unions who accepted the three-month back pay offer. The department has also given members from the other unions the option to accept in their individual capacity.

"We must remember that a business rescue plan reflects the financial position of a company at the time of publication and the success thereof is linked to the accomplishment of all the suspensive conditions and objectives within the projected timeframe, as defined in the business rescue plan.

"Failure to achieve the objectives set out in the plan will ultimately result in the business being placed in liquidation or burden the existing process with unforeseen expenses, further complicating the process," said Slabbert.

"At the time of voting on the plan, all affected parties and labour unions should have reached an agreement. Now, after the business rescue plan has been adopted, the process is still being delayed."

He said it could be expensive and detrimental to the business rescue for unpaid salaries to keep piling up, especially where limited funding was available to execute the approved rescue plan.

The rescue practitioners also remain responsible to ensure that all statutory obligations are paid, including to the SA Revenue Service.

"It is very important to protect and understand the business rescue legislation. If there is a reasonable prospect of saving the business or alternatively achieve better results than in liquidation, then the mandate for the rescue practitioners would be to negotiate with the unions constructively," added Slabbert.

"One must ask what the cost is of negotiation versus the extensive delays and accumulating salaries and other costs. At the end of the day, it is about what remains in the government coffers. If government's money [for SAA] is up, it is up. Implementing the rescue plan is a strategic effort by government, but a tall order."

MEANT TO BE EXPEDIENT
The legislator meant for the business rescue process to be an expedient process with short timelines to resolve the matter by publishing a business rescue plan acceptable to creditors, said George Nell, a senior business rescue practitioner at Corporate Business Rescue.

In the case of SAA, the process has been dragged out for a period of more than a year, for various reasons, including the devastating impact of the Covid-19 pandemic on the airline industry.

"With the business rescue plan already adopted during July 2020 not being implemented yet, the business rescue practitioners and the role players involved are challenged with numerous problems and consequences which were not foreseen by the legislator as such," added Nell.

"The business rescue provisions of the Companies Act, which is subordinate to the Labour Relations Act and, in the case of SAA as a state-owned company to the Public Finance Management Act, were in a certain sense exposed and led to different interpretations by the legal fraternity and in certain circles unexpected interpretations by the courts."

He that, with reference to the employer-employee relationship, the Companies Act expressly stated that: to the extent that any remuneration, reimbursement for expenses or other amounts of money relating to employment becomes due and payable by the company to employees during the company's business rescue proceedings, but is not paid to the employees, the money is regarded to be post commencement finance, and will be paid in order of preference after payment of the practitioners' remuneration and expenses, and other claims arising out of the cost of the business rescue proceedings.

"The question then again arises if the business rescue plan can be implemented and if a liquidation of the company is the only way out," said Nell.

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