SAA directors risk being held liable
Companies Act holds bosses personally responsible for loss incurred through reckless trading
SAA directors are considering their future at the airline amid mounting risk of their being held responsible for reckless trading.
The Companies Act penalises and holds directors personally liable for loss incurred through knowingly carrying on the business of the company recklessly.
SAA is both insolvent and without working capital to fund operations in the immediate future. To keep trading it requires at least R2bn to pay staff and suppliers, which it has been unable to raise from commercial banks without a full government loan guarantee.
The guarantee, which can only be extended by the Treasury, has not been forthcoming.
In a document submitted to parliament’s standing committee on public accounts (Scopa) for a hearing later this week, the board says that in the past it had allowed operations to continue based on the strength of two legal opinions obtained from law firm Bowmans.
“There was also no indication from the shareholder that guarantees and financial support would not be made available. However, given the recent inconsistent messages from government about support for SAA, it has created huge uncertainty,” the document says.
SAA has been in talks with the Treasury and the public enterprises department over the past week in a bid to secure the guarantee. Finance minister Tito Mboweni has made his feelings known on the matter over several months, saying that SAA should be closed or sold.
The document also says that lenders have told SAA that even on the strength of government guarantees, they are not willing to extend credit facilities.
“In the circumstances, it is clear that the board can no longer rely on the Bowmans opinion and therefore it would be reckless for the company to continue trading.
“In the circumstances, the board will be meeting to reconsider its options and reconsider its position,” says the document.
The Companies Act states that a company must not carry on its business recklessly, with gross negligence, with intent to
defraud any person or for any fraudulent purpose; or trade under insolvent circumstances.
Directors are liable for any loss, damages or costs sustained by the company in circumstances where they “acquiesced in the carrying on of the company’s business despite knowing that it was being conducted in a [prohibited] manner prohibited by section 22(1)”.
The Scopa document is an attempt to lay out a roadmap for when and how SAA intends to table its annual financial statements to parliament, which are outstanding for the past two years. This is a requirement of the Public Finance Management Act, and Scopa chair Mkhuleko Hlengwa has been uncompromising that SAA will not be allowed to continue in a manner that is above the law.
The roadmap also spells out the board’s reasons for its failure to table the statements, as it did not want to risk a disclaimed audit opinion on its goingconcern status.
Among the documents sent to Scopa is a set of draft financial statements for 2017/2018 that reveal a R5.2bn loss for the year. In another presentation, the following year of 2018/2019 shows a similar-sized loss.
When it comes to the solvency of the airline, liabilities exceed assets by R13bn.
While the turnaround strategy had projected SAA would break even by 2020/2021, the board has confirmed that is no longer the case due to poor trading conditions and higher than anticipated oil prices, among other internal constraints faced by the airline.
At the board’s last appearance at Scopa two weeks ago, in response to assertions by DA MP Alf Lees, directors denied they were allowing the airline to trade recklessly.
“Now, a mere two weeks later, the board of directors, in its report to Scopa, acknowledge that they are allowing SAA to trade recklessly,” said Lees in a statement on Tuesday. “The time has come for SAA to be honest with the public and parliament, and admit that the airline is at a point of no return.”
The airline’s executive chair, Thandeka Mgoduso, did not respond to a request for comment.
THERE WAS ALSO NO INDICATION FROM THE SHAREHOLDER THAT GUARANTEES AND FINANCIAL SUPPORT WOULD NOT BE MADE AVAILABLE