Business rescue out
An attempt by trade union Solidarity to save South African Airways (SAA) by applying for it to be placed in business rescue will likely not prevent the liquidation of the indebted airline.
The provisions in the legislation dealing with business rescue indicate that a court would probably refuse to allow business rescue and opt to liquidate SAA.
The ugly truth is that it is far too late to save SAA through business rescue. A team of business rescue practitioners should have been called in years ago.
A comprehensive overview of the relevant sections of the Companies Act by Werksmans Attorneys soon after the process of business rescue was introduced to SA highlights that a company should commence business rescue proceedings at the first signs of financial distress.
The author of the report, Werksmans director Eric Levenstein, quoted a high court judgment that ruled “business rescue proceedings are not for terminally ill corporations. Nor are they for [the] chronically ill. They are for ailing corporations, which given time, will be rescued and become solvent”.
In the case of SAA, its first signs of financial distress were when it tabled its 2013 annual report. The airline was insolvent then. The 2013 annual report showed total liabilities exceeded assets by R849 million, but this figure included a subordinated loan of R1.3 billion from government as equity – the real figure was negative equity of nearly R2.2 billion. The income statement reported a loss of R1.2 billion.
That was the point at which management, the minister or external management professionals needed to act. A year later, total liabilities exceeded assets by R4.8 billion and SAA reported a loss of R2.6 billion.
Management raised the matter of SAA’s status as a going concern in the 2014 annual report, but did not take remedial steps. SAA still had a chance of surviving if action had been taken then. The last time SAA published its financials was for the year to March 2017, when liabilities exceeded assets by R17.8 billion. The auditor-general said then SAA could not be regarded as a going concern due to six consecutive years of big losses and its huge debts.