Could be the first State-Owned Company under business rescue
In what could be considered a historical case, Solidarity has announced that it would approach the High Court to have South African Airways (SAA) placed under business rescue. As a trade union, Solidarity is able to make this application as an “affected person” under the business rescue provisions of the Companies Act.
If Solidarity succeeds in its bid, it would be a first for a state enterprise to be placed under business rescue. A team of experts led by a business practitioner would put plans in place to save the SAA.
Several political parties and civil organisations have already proposed that SAA be placed under business rescue and in a recent report the Auditor-General (AG) wanted to know why it had not yet happened.
Solidarity’s action follows after the AG indicated in a report that SAA had suffered a total loss of R5,6 billion in 2017. The AG also indicated that there was concern about the SAA’s status as a going concern. Based on SAA’s financial statements we can see that since 2016 the SAA’s operating loss has increased by 1 000% to R3,7 billion. Disturbingly, SAA recently advised Parliament that they will likely lose a further R5 billion for 2018.
SAA’s accumulated loss over the past five years was R31,6 billion. According to Solidarity Chief Executive Dr Dirk Hermann, each taxpayer has thrown around R7 700 each into the bottomless pit that is SAA. The amount taxpayers had to fork out is the equivalent of double South Africa’s e-toll costs. The amount is equivalent to 117 Nkandlas. This sum could be used to build 300 new schools in total, which could have educated 210 000 learners. It also exceeds the revenue the state expects from this year’s 1% VAT increase.
Solidarity furthermore says this pattern is not sustainable. Taxpayers’ pockets simply aren’t deep enough to fund it any longer. The trade union contends that the solution for SAA lies in partial or full privatisation. “There are numerous international examples in this regard. We trust that a business rescue process could lead to such an outcome,’’ Hermann said.
Solidarity will serve the court papers on 15 May, and during the coming month it will launch a massive campaign to obtain mandates from thousands of taxpayers to become part of the Solidarity lawsuit as a group.
According to Hermann, the trade union in the first place acts on behalf of its members. Following the AG’s report there is real concern about SAA’s sustainability. The risk that SAA goes into total collapse is increasing by the day. The purpose of business rescue is to bring stability and sustainability to the company and the workers. “However, our members are also taxpayers. It is not just workers’ interests that are at stake here, but public interest too. The SAA case will give a voice to ordinary South Africans who are all paying tax in one way or the other,” Hermann said.
Solidarity’s campaign also includes a memorandum to President Cyril Ramaphosa and Finance Minister, Nhlanhla Nene, requesting that government support the business rescue application and that mismanagement at SAA, as mentioned in the AG’s report, be fully and exhaustively probed. As SAA’s responsible Minister and single shareholder (under the SAA Act), Solidarity has urged Minister Nene to join with the union as a shareholder. The minister is also an “affected person” under the business rescue provisions of the Companies Act and applying for business rescue should be the responsible action of any shareholder. Political parties and Parliament will also be petitioned with a request for a parliamentary debate and a request to make a presentation to a parliamentary committee will be lodged.
According to Hermann, Solidarity’s court action is not just a lawsuit. It is lawful tax protest. “Taxpayers across traditional lines of division are tired of their money being used as bailout for useless management. The SAA court case will be one of the biggest tax court cases in South Africa’s history,” according to Hermann.
A court can place a company under business rescue if the company is financially distressed and if it is just and equitable to do so for financial reasons.
“As confirmed in the AG’s report, SAA is in dire financial straits. Its position keeps deteriorating with the taxpayer having to come up with a bailout every time. If this situation were to continue it can by no means be considered as just and equitable towards taxpayers,” Hermann said.