Mark D Young says the airline is owned more than R700m by the national carrier
The eyes of South African Airways (SAA) creditors and its shareholder's will be on the South Gauteng High Court on Wednesday (24 June 2020) as Airlink argues an urgent application.
The airline is, according to the creditors list published by the BRPs owed more than R700 million. These funds are, allegedly, for tickets sold by SAA both before and after the initiation of the rescue process, which Airlink honoured by flying the passengers.
While the existence of the debt is common cause, this is not, however, the primary basis of the pending court process.
Airlink's current, multi-faceted action was lodged with the Court on the 20th June 2020,
Hearing of Part A of the action has been sought on an urgent basis and seeks to interdict the Business Rescue Practitioners (BRPs) from:
Convening or holding any meeting to consider the business rescue plan,
Introducing the proposed plan, calling for or conducting a vote for the preliminary approval of the proposed plan,
Prevent them from inviting discussion and entertaining or conducting a vote on any motion relating to the plan.
Furthermore, they are seeking an order directing SAA (and/or the company and the BRPs) to provide Airlink, within 2 calendar days of the order being granted, with copies of all minutes from meetings of the board of directors or any committee of the board of directors of the company in which placing the company under business rescue or the prospects of rescuing the company were debated, considered, discussed or voted on.
Airlink are also seeking copies of all correspondence and/or documents pertaining to instructions or communication from the shareholder (Government) or the Minister of Public Enterprises to the board of directors of SAA, which deal with placing the company under business rescue or the prospects of rescuing the state owned airline.
The second part of the application, to be argued in the ordinary course of process, seeks the following:
An order that the resolution adopted by the SAA board placing the company under business rescue, dated 5 December 2019 (“the Resolution”) is set aside, alternatively, declaring that the business rescue proceedings have terminated due to the failure by the BRPs to publish the proposed plan within the required time to do so;
A declaration that there are now no reasonable prospects of rescuing SAA;
A declaration that, at the time that the resolution was taken, the board of SAA could not have had reasonable grounds to believe that there appeared to be reasonable prospects of rescuing the airline;
An order placing SAA under provisional liquidation;
The issuance of a rule nisi (an order that comes into effect at a future date unless set conditions are met) calling upon all persons interested, or otherwise affected, to show cause, if any, on a date to be determined by the Court, why SAA should not be placed under final liquidation;
An order to the effect that the appointment of the BRPs as business rescue practitioners of SAA be set aside, alternatively the removal of the BRPs as business rescue practitioners of the SAA;
The papers filed also include a prayer, in the event that the orders sought are not granted, that the Court appoint an alternative business rescue practitioner who satisfies the requirements of section 138 of the Companies Act, recommended by, or acceptable to, the holders of a majority of the independent creditors’ voting interest who may be represented in the hearing before the Court, alternatively that the board of directors of SAA appoint a new business rescue practitioner within 10 days of any order.
There are several provisions relating to the appointment of a Business Rescue Practitioner mentioned in section 138 of the companies act but it is not clear form the court papers which of these, in the opinion of Airlink, the current BRPs do not satisfy. (The act is available here.)
However, according to a statement issued by Airlink, it would appear that the challenge will be directed at section 138 (d). In its statement, the Airline sets out the core motivations for its actions as follows:
“The proposed SAA business rescue plan prejudices concurrent creditors, including Airlink, to the benefit of SAA’s shareholder, the Department of Public Enterprises, which will then own an unencumbered business, funded by concurrent creditors, but still commercially insolvent.
The plan is commercially implausible, especially given the uncertain outlook for the industry after the COVID-19 crisis. It also fails to meet Government’s stated objective of establishing an airline that would be sustainably viable and independent of the fiscus. The plan requires taxpayers to prop up the company for several years post rescue.
The plan is still conditional, SAA remains commercially insolvent on the business rescue practitioners’ own version, and there is no indication as to how the plan and the expected losses will be funded.
All creditors – including Airlink - deserve a fair deal based upon a reasonable settlement. The SAA business rescue practitioners are not adequately independent as contemplated in the Companies Act.”
In response to the application, the Business Rescue Practitioners issued a bald statement detailing the action and its several parts, while saying the action will be opposed.
In the interim, it has become clear that Mango, the wholly owned subsidiary of SAA, has been funded to resume operations on domestic routes. Flight Radar 24 has shown several Mango flights on domestic routes in the past few days.
No local private airlines have been offered any form of relief, notwithstanding intense lobbying of government, to help mitigate the effects of the prolonged, government decreed, mandatory shut down of domestic passenger aviation since late March 2020 in terms of the Covid19 disaster regulations.
This clear subsidy of a section of an insolvent SAA therefore – on the evidence of the business rescue plan published last week to the value of at least R500 million – appears to raise prospects of further litigation regarding unfair competition and other related aspects in the days and weeks ahead.
Certainly, the developments in this saga - and especially the Airlink court applications - will be closely watched by everyone affected.