Certain senior politicians seem to have a misapprehension of how business rescue works in South Africa, particularly as it regards the situation at South African Airways (SAA). Some within the ruling party recently indicated that the government will intervene to “retain the [sic] SAA as a state-owned enterprise”. This cannot legally be done.
The government, as the sole shareholder in SAA, would apparently “step in” if the business rescue practitioner (BRP) takes decisions it does not “like”. Apparently, despite this certainly not being the case in law, BRPs “report to” government, because it is the sole shareholder of SAA, and therefore government may intervene as and when it pleases.
Whilst it is correct that shareholders do not have to keep quiet during business rescue proceedings, the BRP definitely does not report to the owner of the company. Section 140(3)(a) of the Companies Act, enacted by the present government in 2008, stipulates that the BRP is an officer of the court and must report to it (the court) in accordance with any rules or orders it has made.
The narrative put forward by the government that the BRPs are supposed to submit to the government simply because it owns SAA is therefore false.
Even though the government, specifically the Department of Public Enterprises, is itself not a director because only natural persons can become directors in terms of the law, it does appoint directors to SAA’s board. In order to intervene, the government would have to act through the board to effect any changes it wants to see implemented.
[perfectpullquote align=”right” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Whilst the Companies Act can serve as a deterrent to disruptive intervention in business rescue proceedings, Parliament can, unfortunately, merely amend the Act itself to suit government in future instances where other state-owned enterprises (SOEs) may also be placed into business rescue.[/perfectpullquote]
Chapter Six of the Companies Act deals with business rescue proceedings. Sections 137 (2)(a)-(b) and (3), which deal with the effect of business rescue proceedings on shareholders and directors, stipulates that directors’ authority is subordinate to that of the BRP, and that directors must comply with all reasonable instructions from the BRP. Effectively, BRPs are given extraordinary powers in the place of directors, to ensure that they can do their duty without undue influence from those who brought the company to the precipice of bankruptcy in the first place.
These subsections are complemented by section 140 (1)(a) of the Act, which lays out the general powers and duties of practitioners. It stipulates that the BRP “has full management control of the company in substitution for its board and pre-existing management”.
The only way the government can legally attempt to interfere with the business rescue process based on their unhappiness with the actions of the BRP is if they apply for a court order in terms of either section 130(1)(b) or section 139(2) of the Act.
Other than that, the supreme authority of the BRP is unambiguous.
The acts of intervention contemplated by the government would be direct contraventions of the law.
If the government refuses to abide by the law and attempts to intervene in the business rescue process via the board, the BRPs may, in terms of section 137(5) of the Act, apply for a court order removing the directors involved for impeding the practitioners in the performance of their duties.
Once, or if, the interference begins, it would be wise for the BRPs to approach the court to obtain an interdict against the government to prevent any unlawful interference in the business rescue process.
Whilst the Companies Act can serve as a deterrent to disruptive intervention in business rescue proceedings, Parliament can, unfortunately, merely amend the Act itself to suit government in future instances where other state-owned enterprises (SOEs) may also be placed into business rescue.
It is unlikely that, at the time of initially passing the Act, the government foresaw the events currently unfolding in the realm of public enterprises, otherwise they probably would have created an exemption for SOEs. The government’s miscalculation has, therefore, turned out to favour the public interest, at least insofar as SAA is concerned.
It is crucial that the business rescue proceedings remain free of unlawful external interference. The recent utterances of high-placed politicians regarding the role of government should concern all South Africans who take the constitutional imperative of accountability seriously. Business rescue practitioners, especially when dealing with SOEs that have milked the Treasury dry over recent decades, must be able to act without fear, favour, or prejudice.
Jacques Jonker an intern at the Free Market Foundation. The views expressed in this article are those of the author and not necessarily those of the Free Market Foundation.