Explanation: South African Airways is in “corporate bailout”. What does it mean?


JOHANNESBURG (Reuters) – Debt-ridden and years of mismanagement, state-owned South African Airways (SAA) has been placed in commercial bailout – South Africa’s bankruptcy protection process – in a last ditch attempt to save the national carrier.

A South African Airways (SAA) plane is pictured after landing at Cape Town International Airport in Cape Town, South Africa December 9, 2019. REUTERS/Sumaya Hisham

South Africa’s business rescue process, which will shield SAA from claims by its creditors while an independent adviser takes over, borrows from US, UK, Canadian and Australian laws.

But corporate rescue is uniquely South African in terms of timelines, ranking of preferences among stakeholders and involvement of the workforce.

Here are the key aspects of the process:


In a voluntary business rescue, a restructuring expert known as a corporate rescue practitioner is appointed by the board of directors to take over the running of the struggling business. His job is to save the business or at least provide a better return to creditors than a formal liquidation.

The corporate salvage practitioner must promptly assess the operations of the business and, within 10 business days, summon creditors and employees to give an opinion on whether there is a reasonable chance that a salvage plan will succeed .

If he deems there is hope, he is required to submit a business rescue plan within 25 days of his appointment.

This could include the restructuring of the company, its assets and its debts. The assets of the company could be sold. Or the business rescue professional could simply plan an orderly liquidation of the business.

The company’s rescue plan must be voted on and adopted by the parties concerned, which include creditors but also employees.

If the corporate salvage practitioner finds there is no reasonable chance that a salvage plan can succeed, he files for liquidation.


South Africa’s strict labor laws extend to business rescues. Employees continue to work for the company under the same terms and conditions and should be consulted throughout the process.

Any changes in the employment of workers, including dismissals or reductions in wages and benefits, must be agreed between the company and the employees in accordance with labor laws.

The bailout of companies leaves workers in a better position than a liquidation in which contracts are suspended and demands for wages and pension benefits are capped.


Company employees also sit near the top in the order of preference for paying claims.

They rank just below the company rescuer’s own compensation and process costs.

Next come lenders with secured claims dating from before the process began, followed by creditors who provided financing or services after the business was placed in business bailout.

Last in line are legacy creditors whose unsecured claims predate the process.

Reporting by Joe Bavier; Editing by Sonya Hepinstall


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