Velvet Sky ‘missed an opportunity for business rescue’

VELVET Sky would have been an ideal candidate for an application to be placed under business rescue if, as its senior management have stated, the magnitude of its debt was not “unusual” for the airline industry.

The airline’s chief operating officer, Gary Webb, would not disclose details about the firm’s unpaid bills but earlier this week said “it’s not even three days of expenditure”.

On Friday last week, the Pietermaritzburg High Court gave Velvet Sky until Monday next week to respond to BP’S application to have the airline provisionally liquidated.

Counsel for the oil firm told the court that Velvet Sky had breached its undertaking to pay arrears by February 17 and had not kept up to date with current payments for aviation fuel. Counsel further said that the airline had known last Wednesday that BP would launch an application on Friday, but that it had not responded.

Werksmans Attorneys director Eric Levenstein said yesterday that Velvet Sky appeared to be a perfect example of a firm ready for business rescue.

“Despite the pressures placed by BP on the airline company, the company’s directors did not consider this option in order to obtain a moratorium on the claims of creditors,” Levenstein said.

He added that in the days before the high court action by BP, Velvet Sky could have filed a business rescue application with the Companies and Intellectual Properties Commission and stopped the liquidation proceedings. Webb was not available yesterday to explain why such an application was not filed.

Levenstein said that if it had been filed, Velvet Sky would have appointed a business rescue practitioner and attempted to introduce “post-commencement financing”, which would enable Velvet Sky to continue operating while its problems were being addressed.

Although business rescue might have been an easier option Levenstein stressed that it was not guaranteed that Velvet Sky would have succeeded with its application.

Since the option was made available with the introduction last May of the new Companies Act, some 280 applications have been filed but only six have been approved.

The aim of balancing the interests of stakeholders and the company still appeared to be viewed with suspicion by some creditors, who feared that business rescue was a loophole for companies that simply wanted to delay or avoid making payments to creditors, Levenstein said.

“It is likely that this will change over time as creditors recognise that legal frameworks are in place to prevent abuse of the system. As understanding of the mechanics and the benefits of business rescue develops, support for the option will increase.”

Velvet Sky executives were unavailable for comment.