JOHANNESBURG - Administrators trying save South African Airways (SAA) will appeal a court ruling that ordered them to halt a layoff process, one of the administrators Siviwe Dongwana told Reuters.
State-owned SAA has been fighting for its survival since entering a form of bankruptcy protection called "business rescue" in December. Its fortunes deteriorated when the coronavirus pandemic forced it to halt all commercial passenger flights and the government said it would not provide further funding.
The Labour Court's decision to side with two trade unions in its judgment on Friday was a major blow to the administrators as they have said that layoffs are necessary to avoid the airline being liquidated.
The court ruled that it was "procedurally unfair" for administrators Dongwana and Les Matuson to issue notices to workers about consultations on layoffs without having first presented a business rescue plan.
Rescue experts say the case has huge implications for future attempts to save troubled businesses.
Dawie van der Merwe at BDO Business Restructuring said it had been standard practice for a rescue practitioner to consult with workers about job cuts immediately after the rescue process starts, because companies under business rescue were by their nature in financial distress.
"Business rescue is an insolvency process for companies that can't pay their bills. So if the company hasn't already consulted with labour, once you enter business rescue you have to start consultations," he said.
Van der Merwe said that if rescue practitioners were prevented from consulting with workers about layoffs until a rescue plan was ready – which in complex cases like SAA can take considerably longer than the 25 days stipulated in companies law – then businesses would be more likely to file for liquidation instead of going down the business rescue route.
That would defeat the purpose of South Africa's bankruptcy protection legislation, which already entrenches workers' rights to a large extent and whose aim is to save potentially rescuable businesses, he said.
Dongwana and Matuson have until the end of the month to draft a rescue plan for SAA, which has not made a profit since 2011 and has received bailouts worth more than 20 billion rand ($1.1 billion) over the past three years.
Public Enterprises Minister Pravin Gordhan wants SAA to be restructured into a new airline and has asked unions to share their views on how that might be achieved.
(Reporting by Alexander Winning; editing by Grant McCool)