Longstanding SAA creditors stand to lose over R11 billion

By Carin Smith

Creditors of South African Airways before it went into business rescue last December stand to lose as much as R11.4 billion if a draft business rescue plan proposed by its business rescue practitioners, Les Matuson and Siviwe Dongwana, is implemented.

This figure is without lease damages of up to R30 billion should lessors, for example, not be able to re-lease aircraft and mitigate damages.

On the other hand, this is not the dilemma faced by secured lenders - mainly the major banks in the country - who had lent a total of R16.4 billion to the airline in the past and were given government guarantees that their loans would be paid back.

SAA was placed in business rescue after a series of turnaround attempts, that resulted in more than R30 billion in government bailouts being poured into the airline, failed.

The practitioners are " ... effectively offering pre-commencement creditors a share in an insolvent national airline, which they forecast in the draft plan will lose R21 billion over the next three years," one of the creditors, who wished to remain anonymous, told Fin24.

The draft proposal calls for a further working capital injection of R2 billion to restart the airline after the coronavirus pandemic is over; R2 billion for retrenching about 48% of SAA's about 5 000 employees; and R600 million to be distributed to general concurrent creditors. This is in addition to R16.4 billion already allocated to the secured creditors.

The proposed offer to pre-commencement creditors of 5 cents in the rand will be payable over a three-year period. All unpaid amounts at the end of the three-year period will be converted into equity in SAA.

The draft plan was submitted to affected parties like creditors, the Department of Public Enterprises as shareholder, and unions earlier this week for feedback. These inputs may then be used by the practitioners when drafting a plan, which they intend to publish on Monday, June 8.

"It is a poorly drafted document with no substance, especially having regard for the fees levied to date. In our view, the plan is not sufficiently independent and acquiesces to the shareholder (government) when their legal mandate is to treat all affected parties equally," says the creditor.

"There is no detail on the proposed business plan and modelling, no underlying assumptions to support the model, no calculation of the liquidation dividend, no list of pre-commencement creditors, no calculation of the proposed dividend due to pre-commencement creditors, and multiple cross-referencing errors."

For the creditor - who claims this is the general consensus among concurrent creditors of the airline - the draft rescue plan lacks the requisite information for creditors to make a reasonable assessment thereof.

In his view, the draft plan looks like a rushed job "to placate the Department of Public Enterprises after the lashing received" by the business rescue practitioners during a recent parliamentary briefing by Minister of Public Enterprises Pravin Gordhan. He made no bones about the fact that he is questioning the way the practitioners spent the R5.5 billion post-commencement funding received. He was also not happy with the draft business rescue proposal provided earlier this year.

In mid-April the practitioners informed creditors that the DPE denied a request to fund the business rescue by R7.7 billion and that, due to there not being any more money to run the airline, the only options remaining would likely be to wind it down or to liquidate.

That is why the creditor cannot understand where the about R21 billion in losses the draft plan predicts the airline will incur over the next three years, will come from - if not once again from taxpayers.

He also feels the proposal presented in the draft plan would deprive the creditors - and SA taxpayers - of an insolvency inquiry where the directors - and possibly the shareholder of the airline - could be interrogated on their actions.

Voting

Fin24 asked Gideon Slabbert, managing director and business rescue practitioner at Turnaround Rescue Solutions, to explain how the process relating to the draft plan could legally progress from here.

"With the first creditors voting meeting in sight, it is imperative for every creditor to educate himself on the terms and conditions of the plan as well as the voting procedure. Creditors must ensure that they have adhered to the practitioners' specific claim validation procedure and they must ensure they have received confirmation of the claim value, whether it is being disputed or not," says Slabbert.

The plan requires 75% approval of the voting interest present at the meeting. If creditors do not attend the meeting, they are automatically disqualified. Furthermore, 50% of the voting interest must be independent of nature. Therefore, he advises creditors unable to attend the meeting, to appoint a person with a legal mandate to vote on their behalf.

If the plan is not approved at the first meeting, the Companies Act provides legal guidelines for the practitioner.

"The first choice would be to request approval at that same meeting to revise the plan and schedule another voting meeting as per the procedures of the act. If the plan is rejected at the second meeting, the company has to be placed in liquidation," explains Slabbert.

This article originally appeared on Fin24

Photo: Fin24