SAA after Business rescue

[GL]

After much hesitation and delay, Solidarity has finally launched an application to put SAA into Business rescue.

"A business rescue application is the only remaining option to limit the damage. Recent events at SAA accelerated the crisis. SAA’s Day Zero is imminent. The current shareholder has lost control over finding a solution for SAA.
We realise that a business rescue application is fundamental and therefore we held discussions repeatedly. Business rescue is no magic wand for the SAA; in fact, it drives the crisis to a head with no guarantee of a solution. However, we know that the current path is past the point of finding solutions. The current trajectory would mean an overall collapse of all operations within SAA. Business rescue gives us the chance to save those parts of the SAA that are still functional and efficient,” stated Hermann.

[gregdeklerk]

Que to the shareholder emerging from stage right with some empty promises to oppose the application only to kick the disfunctional can further down the road....

[rainier]

How would business rescue work in the context of SAA ? Is this feasible ?
Would love to hear some level headed opinions on this.

[GL]

How would business rescue work in the context of SAA ? Is this feasible ?
Would love to hear some level headed opinions on this.

In South Africa the Business Rescue process, (as defined by the Companies Act of 2008), aims to “facilitate the rehabilitation of a company that is “financially distressed” by providing for: the temporary supervision of the company and management of its affairs, business and property, by a business rescue practitioner, a temporary moratorium (“stay”) on the rights of claimants against the company or….. and the development and implementation (if approved) of a business rescue plan to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity.”
Business rescue process would thus provide SAA with the opportunity to reorganise and restructure its affairs, and to structure a payment scheme with its creditors, whilst also saving jobs and allowing the business to continue trading as an economically contributing entity.
The following actions are then prescribed by the act:
Within 10 business days after being appointed, the practitioner must convene a meeting of the creditors and a meeting of the employees and advise them of the prospects of rescuing the company.
A business rescue plan, as proposed by the practitioner, must be published by the company within 25 days after the date on which the business rescue practitioner was appointed.
A moratorium on payments must be declared to creditors. This has far reaching effects on creditors, financial institutions, shareholders and employees.
“The practitioner may also remove any person who formed part of the pre-existing management of the company from office or appoint a person as part of the management of a company. In some instances, the practitioner will need to obtain the approval of the court for an appointment.”

[rainier]

Thanks - yes, that I know. The question is the SAA context. I'm having difficulty visualizing the practical implementation given the size and complexity of the problem. I can see this work for your typical distressed company that might be in trouble due to cash flow issues - the above text in context with SAA as is stands blows my mind. Obviously I am missing something as Solidarity is pushing for it.

[evanb]

Chapter 11 bankruptcy in the US helped airlines do a few things including renegotiate labour agreements, renegotiate debt with banks and renegotiate airport leases and user agreements.

A huge challenge for business rescue with SAA is that most of the debt is guaranteed by the state. Why would banks renegotiate the repayment terms when the National Treasury has guaranteed the repayment terms?

Aircraft leases are almost entirely entered into foreign jurisdictions (places like Ireland and Singapore). South African law and courts have no jurisdiction over these leases.

And finally, does the framework for business rescue supersede labour law? I suspect now, but hopefully a lawyer could help us out.

So what really is business rescue going to achieve?

[GL]

Chapter 11 bankruptcy in the US helped airlines do a few things including renegotiate labour agreements,......................
And finally, does the framework for business rescue supersede labour law? I suspect now, but hopefully a lawyer could help us out.

Unlike the American Chapter 11 Bankruptcy Protection, South African Business Rescue protects the rights of employees, but it will still have a significant effect on employees and staff morale. Those employed by the company when it goes into business rescue have their jobs secured – and on the same terms and conditions.
Airline workers in the USA have no such protection. Which is why in the USA, Chapter 11 bankruptcy is almost a rite of passage for airlines seeking to rid themselves of excess staff and onerous supplier agreements.
In South Africa there is nonetheless a temptation to consider business rescue an equivalent process and thus useful for airline turnarounds. It should however be noted that they are dissimilar processes, albeit intended to achieve similar outcomes. During the USA’s Chapter 11 process, the business and creditors come up with a plan for the majority of the creditors. The main difference is that in the South African Business Rescue process, an independent practitioner takes over the running of the business – whereas in the US the company still maintains control.
Secondly, in the US, the creditors need not agree on the proposed outcomes since the court can impose them, whereas in South Africa the creditors (or other stakeholders) have a much greater say in the outcome.
Further, in the USA the companies seek the protection from the courts while in South Africa the creditors (or other stakeholders) seek the intervention of the court.
South African business rescue thus results in negotiated settlements between the business and its creditors. In contrast American Chapter 11 bankruptcy protection allows a court to override contracts without the agreements of all parties. In effect, an airline in trouble in the USA can use the uncertainty of the courts’ ruling as a negotiating tactic. Furthermore, during the American process, the business is protected from creditors and the calling-in of loans.
It need be noted that business rescue has a poor success rate. There is international evidence that only 5% of business rescue cases are successful. Whilst South African studies are still underway to determine the success rate of business rescue, there are estimates that this rate is somewhere between 10% – 12%. The failure of 1time under business rescue is a case in point.

[evanb]

Unlike the American Chapter 11 Bankruptcy Protection, South African Business Rescue protects the rights of employees, but it will still have a significant effect on employees and staff morale. Those employed by the company when it goes into business rescue have their jobs secured – and on the same terms and conditions.
Airline workers in the USA have no such protection. Which is why in the USA, Chapter 11 bankruptcy is almost a rite of passage for airlines seeking to rid themselves of excess staff and onerous supplier agreements.
In South Africa there is nonetheless a temptation to consider business rescue an equivalent process and thus useful for airline turnarounds. It should however be noted that they are dissimilar processes, albeit intended to achieve similar outcomes. During the USA’s Chapter 11 process, the business and creditors come up with a plan for the majority of the creditors. The main difference is that in the South African Business Rescue process, an independent practitioner takes over the running of the business – whereas in the US the company still maintains control.
Secondly, in the US, the creditors need not agree on the proposed outcomes since the court can impose them, whereas in South Africa the creditors (or other stakeholders) have a much greater say in the outcome.
Further, in the USA the companies seek the protection from the courts while in South Africa the creditors (or other stakeholders) seek the intervention of the court.
South African business rescue thus results in negotiated settlements between the business and its creditors. In contrast American Chapter 11 bankruptcy protection allows a court to override contracts without the agreements of all parties. In effect, an airline in trouble in the USA can use the uncertainty of the courts’ ruling as a negotiating tactic. Furthermore, during the American process, the business is protected from creditors and the calling-in of loans.
It need be noted that business rescue has a poor success rate. There is international evidence that only 5% of business rescue cases are successful. Whilst South African studies are still underway to determine the success rate of business rescue, there are estimates that this rate is somewhere between 10% – 12%. The failure of 1time under business rescue is a case in point.

Thank Guy, fantastic insight! My expectations of business rescue for SAA are low.

[HJK 414]

……………..
So what really is business rescue going to achieve?

Hi Evanb,

Does that not depend on the appointed practitioner ?
if he finds that there is no "viable" business and that there is no real perspective of a revival (read financial stability) of the company - he may ask the courts to liquidate the business.

I am unsure whether the "government" or (treasury dept) could counter such a court order.
Me thinks they will try to avoid such a precedent.

Here is the process:
https://corporatebusinessrescue.co.za/t ... oceedings/


JK

[evanb]

Does that not depend on the appointed practitioner ?
if he finds that there is no "viable" business and that there is no real perspective of a revival (read financial stability) of the company - he may ask the courts to liquidate the business.

I am unsure whether the "government" or (treasury dept) could counter such a court order.
Me thinks they will try to avoid such a precedent.

Here is the process:
https://corporatebusinessrescue.co.za/t ... oceedings/

Possibly, but if the biggest cost and cash flow items cannot be touched in the process then how does it change anything?

[danie.e]

Go the OK route - sell the business for R1.00

Everyone may think this is a stupid idea but there is always someone prepared to take the challenge.

[Spice]

Most likely the 'appointee' organisation or persons, will look at their interests first again, not the business, and the corruption and mal management will just deepen in my uninformed opinion. Shut it down, take the pain and move on. One can only put so many plasters on a wounded organisation. It is time SA faces reality check and start shutting down the SOEs that continue to ask for and receive bail outs. Many friends and colleagues will be affected with such a decision, I agree, but retrenchment in the non-SOE environment is almost a way of life and one is under constant threat of it, and people have to deal with it and put their emotional links aside.

[gregdeklerk]

Surely even at R1.00, no-one will be prepared to take on the R40 billion liabilities?

[gregdeklerk]

https://www.moneyweb.co.za/news/south-a ... -save-saa/

[MadMacs]

How would business rescue work in the context of SAA ? Is this feasible ?
Would love to hear some level headed opinions on this.

In South Africa the Business Rescue process, (as defined by the Companies Act of 2008), aims to “facilitate the rehabilitation of a company that is “financially distressed” by providing for: the temporary supervision of the company and management of its affairs, business and property, by a business rescue practitioner, a temporary moratorium (“stay”) on the rights of claimants against the company or….. and the development and implementation (if approved) of a business rescue plan to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity.”
Business rescue process would thus provide SAA with the opportunity to reorganise and restructure its affairs, and to structure a payment scheme with its creditors, whilst also saving jobs and allowing the business to continue trading as an economically contributing entity.
The following actions are then prescribed by the act:
Within 10 business days after being appointed, the practitioner must convene a meeting of the creditors and a meeting of the employees and advise them of the prospects of rescuing the company.
A business rescue plan, as proposed by the practitioner, must be published by the company within 25 days after the date on which the business rescue practitioner was appointed.
A moratorium on payments must be declared to creditors. This has far reaching effects on creditors, financial institutions, shareholders and employees.
“The practitioner may also remove any person who formed part of the pre-existing management of the company from office or appoint a person as part of the management of a company. In some instances, the practitioner will need to obtain the approval of the court for an appointment.”

Yes, remember African Bank who were R8 billion in the red, were saved using this method?