The business rescue practitioners (BRPs) for private-sector airline group Comair have confirmed that the company is not factually insolvent. In their first formal meetings, on May 19, with the company’s creditors and employees, the BRPs highlighted the importance of distinguishing between commercial insolvency and factual insolvency. Comair’s liabilities of R5.48-billion were exceeded by its assets of R7.42-billion.
The airline was in difficulty because it did not have enough cash to pay continuing costs and obligations, and, with South African scheduled air travel halted for an indeterminate time as part of the national lockdown (an attempt to counter the Covid-19 pandemic), it could not generate any revenue. The lockdown was now at Level 4, and, under current plans, domestic air travel would only be restarted when Level 2 was reached.
Furthermore, Comair had made a loss of R564-million for the first half of the 2020 financial year. This figure included the remaining R790-million of a R1.1-billion settlement that South African Airways (SAA) owed Comair, stemming from a Competition Commission ruling. With SAA in business rescue since December, that money was now irrecoverable.
Under these circumstances, the BRPs believed that Comair had had no choice but to enter business rescue. They explained that, under the Companies Act, their function was to assume complete control of the company and determine whether there was a “reasonable prospect” of saving it. If so, the BRPs would, in consultation with the affected persons (including creditors, employees, trade unions and shareholders) draw up a plan to rescue the business. If this plan was approved and adopted, it would then be implemented.
The next move in the business rescue programme was the creation of an employee representatives’ committee and a creditors’ committee. It was expected that the business rescue plan would be published on June 9. There would probably be a vote on the final plan on June 24. Successfully rescuing Comair would require the support of all the stakeholders, including post commencement finance.
The BRPs stated that they did see reasonable prospects for saving the company by means of business rescue. This was because its assets were greater than its liabilities; it was well placed competitively, having had a domestic air travel market share of 39%; it was a critical infrastructure asset for the country; and it benefitted from “immense goodwill” from its customers, the public, and the travel sector.