Business rescue involves complex issues, and it is not as simple as saying that the state cannot "participate" with the business rescue practitioner who will be appointed, according to attorney Adriaan Human of DKVG.
Fin24 approached Human for comment after it was announced that South African Airways will be placed into business rescue. The struggling airline on Thursday said its board had taken the "considered and unanimous" decision to apply for business rescue to create a "better return for the company's creditors and shareholders".
Minister of Public Enterprises Pravin Gordhan said in a statement sent to media in the early hours of Thursday morning it was envisioned that some existing lenders to SAA would provide R2bn in post (business rescue) commencement finance guaranteed by the state and "repayable out of future budget appropriations in order for the business rescue process to commence and to enable SAA to continue to operate".
Government, through National Treasury, will also provide an additional R2bn of post commencement finance in "a fiscally neutral manner," he said, among other planned processes. The department of public enterprises is the shareholder of SAA.
"Business Rescue is a well-defined process that will allow SAA to continue operating in an orderly and safe manner and to keep planes and passengers flying under the direction of a business rescue practitioner," said Gordhan.
Economist Peter Attard Montalto, head of capital markets research at Intellidex, earlier said in a client opinion that in his understanding a business rescue practitioner cannot legally be "dictated" to by a shareholder, creditor or government.
Montalto interprets Gordhan's statement as seemingly wanting to "impose" a way forward on the business rescue practitioner and, in his view, seems to be "stepping over the line".
Human, meanwhile, said that the creditors of a company play a crucial role in the process of adopting a business rescue plan.
Should the state, in terms of the money it "lent" or "lends" SAA be regarded as a creditor, then it would be able to play a part in the eventual business rescue plan which will be drawn up for SAA's business rescue, said Human.
The Companies Act states, among other things, that, during a company's business rescue proceedings, the business rescue practitioner, in addition to any other powers and duties, has full management control of the company in substitution for its board and pre-existing management.
The practitioner may also delegate any power or function to a person who was part of the board or pre-existing management of the company, said Human.
"Business rescue entails that within a prescribed time the practitioner must prepare a business rescue plan for consideration by creditors and possible adoption at a meeting held in terms of the Companies Act. In such a plan the practitioner shall set out the basis for the rescue of the company, assuming that the practitioner is of the view that the company can be rescued," he said.
The act also stipulates that the claim of a creditor prepared to lend money to an company after it had gone into business rescue, will have preference over the unsecured claims of the company prior to the business rescue proceedings having commenced.
In the view of Montalto, the practitioner is answerable "to the court only" and must independently make the determination on whether a firm must be liquidated, for example.
Human said that, to give effect to the plan, it requires the approval by and eventual vote in favour of the plan by the body of creditors.
Montalto, meanwhile, anticipates a "political clash" coming in the process of determining the business rescue plan. In his view, the struggling state-owned company will likely still end up being liquidated.
Either way he foresees SAA being turned into a "radically slimmed down entity".