One of the most detrimental aspects of the Corona Virus (COVID-19) from a business rescue perspective is that all momentum that was built up before the Government imposed lockdown will invariably be lost.
This seems to be the case with SA Express where reports by the Mail and Guardian have indicated that the business rescue practitioners have thrown in the towel.
Internal correspondence to employees, dated 21 March 2020 and seen by the Mail & Guardian, show that the practitioners, who were appointed by the courts last month, have been unable to raise the post-commencement funding (PCF) required to stabilise the airline’s balance sheet while restructuring the business.
The Mail & Guardian article further pointed out that it has also revealed that SA Express, which is so broke that it had just over R1-million in its bank account last week and cancelled flights because it could not afford insurance, has not contributed to workers’ pension funds, the Unemployment Insurance Fund (UIF), or income protection for the month of February.
The article added that the business-rescue practitioners, Phahlani Mkhombo of Genesis Corporate Solutions and Daniel Terblanche of DT Consult RSA, have been caught in a stalemate with SA Express’s government shareholder, the Department of Public Enterprises.
The Department, which has previously said it has no confidence in the practitioners and has started its own process to develop a rescue plan, unsuccessfully tried to convince SA Express’s creditors to remove Mkhombo and Terblanche as practitioners, claiming they weren’t independent because they were appointed as a result of a court application by one of SA Express’s creditors, Ziegler South Africa.
The article pointed out that the practitioners argue that they are independent and have never had an engagement with Ziegler outside the prescribed business rescue processes.
The COVID-19 effect
“In addition to all these challenges, the situation is now exacerbated by the recent worldwide spread of COVID-19 virus, which has already had a significant impact on the aviation industry globally,” the rescue practitioners said in their letter, “this is the biggest crisis the aviation industry has faced in decades. Without funding or PCF, which, unfortunately, cannot be quantified with certainty at this stage due to the recent outbreak of the COVID-19, the business rescue will not succeed.”
“In light of the above and based on our own objective assessment of the plethora of challenges faced by the company, we have come to the conclusion that a reasonable prospect to rescue the company no longer exists and, consequently, we will begin a process to convert the current business rescue proceedings of the company into liquidations as envisaged in terms of section 14(1) and (2) of the Companies Act with immediate effect. This will be done by way of application to court,” the letter concluded
This is a devastating blow for the local business rescue industry. If the SA Express business rescue was successful, there would be no more room for words such as a lost cause.
The TMA-SA is confident that this is not a sign of things to come and that there will be plenty of successful business rescues coming out of the COVID-19 fallout. It is just a pity that SA Express would not be one of them.