10 November 2021 by Business Rescue, Restructuring & Insolvency

Business Rescue, Restructuring & Insolvency Newsletter: Volume 25 | Navigating business rescue, restructuring and insolvency during COVID-19

Just as we started gearing ourselves towards closing up this tremendously challenging year by booking our December holidays, our phones started pinging with those dreaded EskomSePush notifications announcing that we would be vacillating between Stage 2 and Stage 4 load shedding for the foreseeable future. To add insult to injury, Rand Water has also announced that it will be implementing a 54-hour water shutdown in the next week that will result in temporarily reduced water supply to large parts of Johannesburg. These electricity and water shortages have resulted in an inevitable knock to the rand’s value this week, and further pinched our efforts to achieve a COVID-19 economic recovery. This current state of affairs is a sobering reminder that while we have our much-needed December breaks to look forward to, we must not lose sight of the fact that there is still more work to be done in order to achieve economic recovery.

In the world of business rescue and insolvency related news, we are happy to report that the business rescue mechanism continues to achieve its desired results as multiple companies currently under business rescue are reporting successful milestones on their roads back to a state of solvency. The Ster-Kinekor Group recently reported that it is confident it has reached a stable condition, with a further upwards commercial trajectory being expected as a result of positive discussions with key stakeholders, good progress in negotiations with a potential investor, and the support of a strong slate of incoming film content that is attracting higher audience attendance rates.

Comair’s business rescue practitioners have also reported that the airline’s funding requirements have stabilized, and they believe that the company is capable of being rescued. The only challenge left to be resolved appears to be a legal battle that the airline is currently facing in a US court regarding the cancellation of a purchase agreement for airplanes. But in other good news for Comair, its wholly-owned subsidiary, Kulula.com, has experienced such a high demand in travel for its Cape Town to Durban route that it has been able to launch a double daily service on the route. The airline’s CEO announced that even prior to the COVID-19 pandemic, the airline only operated one flight per day on this route.

Moving onto the news regarding our ever-controversial state-owned enterprises (SOEs), Transnet’s CEO recently reported an R8,8 billion loss for the financial year ending March 2021, amounting to an R11,1 billion negative swing from its previous year’s profit of R2,3 billion. There has been much speculation in the press as to the factors that have contributed to this negative outcome. However, Transnet’s management has blamed this negative swing on lower volumes and revenues related to the COVID-19 pandemic and the ensuing lockdowns. Whatever the cause may have been, it appears that Transnet has now joined the host of other SOEs that are currently considering their legal options for economic recovery, and to avoid the inevitable swarm of creditors’ demands.

In further news, the generally negative commercial state of our SOEs interestingly precipitated in the National Metalworkers Union of SA (NUMSA) approaching the Constitutional Court in May of this year with an application seeking to have Parliament decide whether SOEs can be allowed to go into liquidation. NUMSA envisioned a process whereby Parliament’s Standing Committee on Public Accounts – or any parliamentary committee serving a similar purpose – would hold public hearings to entertain submissions on whether an SOE in financial distress should be allowed to be liquidated, and for Parliament to then pass a resolution on the matter. However, the Constitutional Court dismissed NUMSA’s application on the basis that it was not within its jurisdiction to hear it. The current generally negative commercial state of our SOEs seems to have stimulated stakeholders into think-tanking various novel solutions to addressing the problem. However, we hope that the necessary stakeholders take cognizance of the success currently being achieved by companies that took timeous advantage of the relief made available by our business rescue laws.

In this month’s newsletter, we consider whether the insolvency procedure of administration is an effective corporate rescue mechanism in the Kenyan legal context. We further discuss the findings in the recent judgment of Voltex (Pty) Ltd v First Strut (RF) Limited (43914/2017) [2021] ZAPHC (5 October 2021).

While we continue to face novel economic challenges necessitating further work by all, we must also acknowledge that as a collective we have weathered an incredibly difficult year. The CDH Business Rescue, Restructuring and Insolvency Sector accordingly encourages you to continue with planning your December breaks, and enjoy the much-needed time of rest with your loved ones. As we reboot, we get ready to yet again pick up our tools and work together in continuing to strive towards recovering businesses and our economy in general.

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