Cape Times

Velvet Sky ‘missed an opportunit­y for business rescue’

- Ann Crotty

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.

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