Court appeal over retrenchments adds another spanner to SAA business rescue proceedings

The dust-up between SAA business rescue practitioners and trade unions representing workers over mass retrenchments at the troubled airline has been escalated and will further play out at the Labour Court in Johannesburg. 

The SAA business rescue practitioners, Les Matuson and Siviwe Dongwana, launched an urgent appeal on Tuesday against a Labour Court ruling that ordered the duo to stop the retrenchment of almost 5,000 workers. 

The appeal adds another spanner to the SAA business rescue proceedings as its success so far hinges on the retrenchment of workers to save costs at the airline. The appeal will probably prolong the rescue proceedings, which have been ongoing for five months and haven’t yet yielded a firm decision about how SAA will be rescued. 

Lawyers representing Matuson and Dongwana have argued that if the appeal is not dealt with on an urgent basis, the ongoing business rescue proceedings of SAA might be impacted in an “adverse and irremediable” manner.  

“The matter is of significant importance to South African Airways (SAA), which is in a perilous financial situation. The success of SAA’s business rescue proceedings is largely dependent on the outcome of an appeal to the Labour Appeal Court. The matter is also of great importance for the country and business rescue proceedings in general,” the lawyers said in a letter to the court, which accompanies appeal papers. 

On Friday, 8 May, Judge André van Niekerk of the Labour Court set aside retrenchment notices issued to SAA workers, saying the notices were “procedurally unfair” under section 136 of the Companies Act, which governs business rescue proceedings in SA. This was a crucial victory for the National Union of Metalworkers of SA (Numsa) and the SA Cabin Crew Association (Sacca), which approached the Labour Court to stop Matuson and Dongwana from continuing with retrenchments.  In coalition, Numsa and Sacca are the majority union at SAA.

In interpreting section 136 (1) of the Companies Act, Van Niekerk said business rescue practitioners may only initiate a retrenchment process once a business rescue plan has been presented to affected parties including SAA workers, their representative trade unions, creditors and others.  

Since SAA was placed under business rescue by the government (the sole SAA shareholder) in December 2019, Matuson and Dongwana have not produced a decisive plan on how the airline will be restructured. Without additional cash from the government to fund the business rescue proceedings, Matuson and Dongwana are attempting to wind down the airline and cut operational costs. To free up cash, Matuson and Dongwana will sell SAA assets such as properties and aircraft parts. 

The R5.5-billion awarded to Matuson and Dongwana by commercial banks and the Development Bank of Southern Africa since December 2019 – money that was set to fund SAA’s working capital requirements while it was being restructured – has been depleted. The government has rejected the request by Matuson and Dongwana in April 2020 for additional funding of between R7.7-billion and R10-billion.

Labour Court appeal 

Matuson and Dongwana have taken umbrage at Van Niekerk’s interpretation of the Companies Act, saying he erred in several ways. 

The duo has argued that the Labour Court has no jurisdiction to stop retrenchments, adding that the High Court has “exclusive jurisdiction on questions of interpretation of Chapter 6 of the Companies Act”. Van Niekerk ruled that the Labour Court has jurisdiction because the retrenchments in question are about worker rights and fair labour processes, which are protected under the Labour Relations Act.  

Matuson and Dongwana said Van Niekerk erred when he ruled that “there is complete protection against employees’ dismissal during business rescue proceedings” and that the Companies Act prohibits retrenchments until a business rescue plan is presented. 

“…The Judge erred in interpreting the provisions of section 136 in… finding it to mean that there is complete protection against employees’ dismissal during business rescue proceedings... [and] holding that Section 136(1)(b) should be interpreted to mean that during business rescue proceedings, a contemplated retrenchment may only be routed or located in a business rescue plan,” Matuson and Dongwana said in court papers. BM