SAA business rescue practitioners granted leave to appeal in retrenchment case

SAA (Supplied)
SAA (Supplied)

The business rescue practitioners of South African Airways are allowed to appeal a recent Labour Court judgment which found that, in the absence of a business rescue plan, the issuing of Section 189 notices commencing a consultation process over proposed retrenchments was procedurally unfair.

The original application was brought by the National Union of Metal Workers of SA (Numsa) and the SA Cabin Crew Association (Sacca) – which together represent the majority of union members at the state-owned airline.

The original judgment sparked debate among some legal experts about its potential impact on the business rescue process, especially in light of the coronavirus pandemic, where in some cases it might be financially impossible for a company to continue paying its employees until a business rescue plan is approved.

Minister of Public Enterprises Pravin Gordhan emphasised the importance of the case to Parliament during a recent briefing. Gordhan said he and the unions believe "an alternative transition process" is possible for SAA.

Public interest

In their application for leave to appeal, the practitioners argued that it is of significant public interest to obtain clarity on whether a business rescue plan first needs to be submitted before a retrenchment process can start. They said the judgment was in conflict with a judgment in a prior, similar case.

On behalf of the unions, it was argued that a memorandum of agreement to cooperate in finding a solution for SAA was recently signed between Gordhan and the practitioners, removing the need for an appeal in the court case.

In granting the practitioners leave to appeal his original judgment, Judge Andre van Niekerk, however, said he did not understand how the terms of that memorandum would lead to final resolution of the dispute between the practitioners and the unions about the retrenchment process - perhaps simply a pause.

Van Niekerk noted that much of the practitioners' argument for leave to appeal concerned the nature of the business rescue process and underlying policy relating to it, especially relating to whether a plan must first be submitted before a retrenchment process may begin.

Critique

In the view of the judge, critiques of his judgment - and referred to by the practitioners in their argument for leave to appeal - "are for the most part self-interested and self-serving" of those involved in the business rescue field.

"If the statutory provisions that regulate business rescue are unworkable, that is a matter for the legislature to resolve," said Van Niekerk.

"The present case raises a constitutional issue, in particular the proper interpretation of section 136(1) of the Companies Act in the context of the Constitutional right to fair labour practices."

Numsa did not wish to comment at present. It and Sacca did, however, say at the time of the original judgment in the unions' favour, that they were committed to saving as many jobs as possible at SAA.

The BRPs said they will seek an urgent date for their appeal to be heard.

The BRPs are aiming to present a new business rescue proposal at the end of this month. It would have to be approved by affected parties, including creditors. They appear to have concluded that there is no reasonable prospect for SAA to be rescued as a financially viable entity, especially in the current coronavirus environment, which has devastated the airline industry.

At present, it remains unclear how SAA is to be funded going forward. Gordhan has said he is hoping to find a suitable equity partner for the airline.

Business rescue places a legal freeze (moratorium) on all debt and provides a business with the opportunity to restructure its debt while, at the same time, independently, assessing and implementing strategies that can ensure profitable future trade as a going concern.

In liquidation, on the other hand, all business assets are frozen and sold to pay for the liabilities. Continuing to operate a business when you know it is insolvent, is considered reckless trading as defined in the Companies Act.

In the view of Mashudu Raphetha, president of National Transport Movement (NTM), the court case has become academic in nature.

"It is simply postponing the inevitable reality that we should be finalising the voluntary severance packages and early retirement planning and working towards ensuring that there is a national carrier when the skies reopen," he said.

Tobie Jordaan, a director at Cliffe Dekker Hofmeyr, who specialises in business rescue, insolvency and restructuring, says the granting of leave to appeal was expected, as the judgment, among other things, dealt with an employee's constitutional right to fair labour practices.

Gordhan is set to brief parliament again on Wednesday evening, including on SAA.

Update: SAA said in a statement on Tuesday that it will retain its domestic schedule between Johannesburg and Cape Town, with effect from mid-June 2020. This position will be reviewed on an ongoing basis.
 
At the same time, SAA is cancelling all planned scheduled flights on regional and international services until the end of June 2020 with immediate effect. This decision has been taken as a result of the continuing global impact of the Coronavirus pandemic.

Customers holding unused SAA tickets will be able to use the full value as a credit for travel on any SAA service up to an including 24th March 2022. SAA will also permit a free name change.

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