Legal Implications of SAA's business rescue

​On Thursday, 21 November 2019, trade union Solidarity announced that it had served an application on South African Airways (SAA) in terms of which it sought an order from the Johannesburg High Court placing SAA into business rescue.

We anticipate that SAA will oppose the application. SAA and Solidarity will exchange affidavits setting out their respective arguments and the hearing will take place at a future date, which we anticipate will be in a matter of weeks. At this stage, it is not clear when the application will be heard. We are attempting to obtain a copy of the court papers which will be informative.
If the application is successful, the Court will likely grant two primary orders, namely, an order placing SAA into business rescue and an order appointing an interim business rescue practitioner (likely nominated by Solidarity in its papers) (the BRP).

The BRP is required to convene and preside over a first meeting of creditors within 10 business days of his appointment. This meeting is important in that the BRP must inter alia:

  • hold a vote to ratify his appointment by the Court (which is voted on by creditors and passed by a simple majority of those creditors voting, in person or by proxy);
  • inform the creditors whether the BRP believes that there is a reasonable prospect of rescuing the company; and
  • determine, in consultation with the creditors, whether a creditors committee will be established.

We recommend that all creditors of SAA ensure that they are represented at this meeting, particularly to vote on the ratification of the interim BRP's appointment (be they in favour or against, depending on who is appointed).
Once appointed, the BRP is obliged to develop a business rescue plan (BR plan) to be considered by all affected parties and adopted by the requisite majority of creditors and (in certain instances) shareholders too. Once the BR plan is adopted, the BRP is obliged to implement it.

While the Companies Act provides that a BR plan should be published within 25 business days after the date on which the BRP was appointed, this rarely occurs. We would expect that the BRPs would take a minimum of six months to publish a BR plan and probably a year or two (depending on the nature of the plan itself) to implement it.

  • Creditors of SAA are reminded that a BRP has wide ranging powers which include:
  • the power to suspend (with certain exceptions relating to employees and holders of security) either entirely, partially or conditionally for the duration of the business rescue, any obligation of the company that arises under an agreement to which the company was a party at the commencement of the business rescue (which agreements would include SAA's operating leases); or
  • to apply to court to entirely, partially or conditionally cancel, on any terms that are just and reasonable in the circumstances, any such obligation of the company.

Furthermore, during business rescue, SAA will be protected by a legal moratorium, where no legal proceeding, including enforcement action, against SAA, or in relation to any property belonging to SAA, or lawfully in its possession, may be commenced or proceeded with in any forum, save for certain exceptions.
It is our recommendation that financiers and lenders to SAA exercise caution in their dealings with SAA until the outcome of the business rescue application is determined. In this regard, any pre-commencement debt due by SAA to any creditor will likely be subject to a compromise as part of the BR plan, whereas during business rescue, the BRP should not incur any debt which cannot be paid in full (therefore the increase of pre-commencement debt could lead to a higher loss).

The bringing of a business rescue application against SAA may be a default trigger of one or more agreements that SAA has entered (in particular its operating leases and finance agreements) - there may well be unintended consequences that this application creates, which may have a larger impact on the creditor body, regardless of the prospects of success of the application. However, if an agreement with SAA does have this trigger, the terms of that trigger and the implications thereof should be considered on a case by case basis to determine the impact on the rights of such a party.

If a business rescue order is granted - as set out above, a BRP has the power to suspend obligations - including payment obligations - and could notionally retain possession of a third party's property during the business rescue, without making payments in accordance with the underlying agreement. However, in our view and experience, we believe that any BRP of SAA would likely ensure that its aircraft operating leases, which are fundamental to the survival of SAA, will remain intact. It is nevertheless our recommendation that all lessors take immediate steps to understand their termination rights under any lease, so as to ensure that in the event of the application being successful, they are in a position to exercise (or at least reserve its rights to exercise) their remedies under its leases, including to possibly terminate the lease and initiate steps to recover possession of the asset (lawful possession of property being the requirement for a company in rescue to maintain protection under the legal moratorium) as soon as possible. This process can also be a bargaining tool to ensure continued payments, if any lessor intends to support the process.

​As at the time of release of this e-alert - we understand that SAA has reached agreement with the participating trade unions, bringing an end to the current strike action at SAA. Whilst a positive development, the business rescue application will likely proceed, notwithstanding the cessation of the current strike activity.​


These materials are provided for general information purposes only and do not constitute legal or other professional advice. While every effort is made to update the information regularly and to offer the most current, correct and accurate information, we accept no liability or responsibility whatsoever if any information is, for whatever reason, incorrect, inaccurate or dated. We accept no responsibility for any loss or damage, whether direct, indirect or consequential, which may arise from access to or reliance on the information contained herein.

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Webber Wentzel > News > Legal Implications of SAA's business rescue
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