SAA rescue plan: Why big banks could lose their majority vote

  • As a voting block, four major banks have the majority when it comes to voting on a rescue plan for SAA.
  • A legal point of debate centres on whether they can really be regarded as being independent creditors as required by the Companies Act.
  • This is because they hold government guarantees for the total of R16.4 billion they lent the airline before it went into business rescue.

As the embattled state-owned airline South African Airways awaits its fate, an unexpected conundrum is being debated in legal circles.

Could the concurrent creditors of South African Airways argue that the four major banks - who form the biggest voting block - should not be deemed independent and, therefore, that they cannot vote on the proposed rescue plan?

The business rescue process allows companies in financial distress, or trading in insolvent circumstances, to file for business rescue and, with the assistance of a business rescue practitioner, to reorganise and restructure with the aim of returning to a more stable and profitable state.

It also places a moratorium on legal proceedings or liquidation procedures against the company in business rescue. 

Voting on a business rescue plan, as well as the postponement of the vote, is only allowed for creditors in attendance in person or by proxy. A 75% vote is needed, of which 50% must be so-called independent creditors. The independence of a creditor is determined, among other things, based on whether a creditor has any influence in appointing the board of directors.

The voting process

George Nell, a senior business rescue practitioner at Corporate Business Rescue, says the creditors' meeting to vote on the proposed rescue plan for SAA promises to be "a very technical and interesting affair", likely leading to a further postponement.

The basis of business rescue, as set out in the Companies Act, is the principle of "even-handedness" in the way creditors' meetings are conducted.

"The whole business rescue process is ultimately reliant on the acceptance of a business rescue plan by the creditors of the company. The only creditors that may vote on the adoption of such a plan, are creditors that were owed at the beginning of the business rescue process," explains Nell.

"I can foresee that the concurrent creditors will argue that the banks are not really independent as they are fully covered by means of government guarantees. In terms of these guarantees, the government is seemingly a guarantor and a co-principal debtor."

Three groups of creditors

He notes that, in the case of SAA, there are, in the main, three different groups of creditors representing three totally different viewpoints.

Firstly, there are the four major banks (Investec, Nedbank, Standard Bank and ABSA) who are secured by government guarantees totalling R16.4 billion. Nell thinks they are likely to vote in accordance with what would satisfy the government as their guarantor.

Secondly, there are the SAA employees, who would want to see as many jobs saved as possible - or at least obtain the best possible retrenchment packages. Employees' vote is determined by the extent of any claims they had at the start of the rescue process.

"Although they are strictly not creditors in the voting process, they have a very important role to play," says Nell. "SAA is a state-owned company and has both a social responsibility as well as a drive to be economically profitable. This is one of the major stumbling blocks for the restructuring of SAA."

As for the third group of creditors, the concurrent creditors, they stand to only receive 7.5 cents in the rand if the current proposed rescue plan is accepted. SAA owed them money before it went into business rescue.

Can feel 'bullied'

"These concurrent creditors can feel that they are bullied into taking a 92.5 cents in the rand haircut while the banks will get all their money from their government guarantees," says Nell.

"This predicament could lead to an extension before the voting on the business rescue plan on Thursday, if enough creditors vote in favour of such an extension."

One of the concurrent creditors, privately-owned regional airline Airlink, intends to bring an urgent court application on Wednesday to prevent a vote on the current proposed rescue plan.

Both the Department of Public Enterprises and the rescue practitioners have indicated that they intend to oppose the court application.

The Department of Public Enterprises said on Tuesday it is intent on pursuing "credible proposals" for private sector investment and strategic partnerships in South African Airways, as well as equity participation for employees.

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