Ziegler SA goes after SA Express board members in their personal capacity

The board of SA Express faces the risk of being charged with bruising sanctions for how they have managed the cash-strapped airline over the past 20 months and the glacial pace in turning it around. 

The 12-member SA Express board might pay legal fees out of their pockets for opposing an urgent application, which was launched at the Johannesburg High Court by a former service provider, to place the state-owned airline under business rescue.  

The hearing for the court application, which was launched by global logistics company Ziegler SA, a former SA Express service provider, started on Tuesday, 28 January 2020 with the company asking the court to place the airline under business rescue because it’s technically insolvent and cannot pay its debts. 

Ziegler SA, which is owed R11.3-million by SA Express, whose flight routes typically serve SA’s smaller cities as a feeder to South African Airways (SAA), asked the court to slap the airline’s board members with a personal legal cost order because their opposition to the urgent application is “reckless”.

In court papers, Ziegler SA MD Charl Du Toit said SA Express’ decision to challenge the application was “without a doubt instigated by its board of directors”, even though the state-owned airline is “severely financially distressed” – legal action that will come with “considerable expense” to it. 

“The directors of SA Express, as directors of a state-owned company, owe a duty to SA Express and its shareholder (the government), to make efficient, economic and effective use of its resources, and to ensure good governance through efficiency and accountability,” said Du Toit. 

Nazeer Cassim SC, counsel for Ziegler SA, took it a step further, saying the directors are “delinquent”, a serious charge of misconduct that can ban a person from being a director in SA for at least seven years. But Ziegler SA didn’t charge SA Express board members with delinquency.

It might be unprecedented if SA Express board members are compelled by the court to pay legal costs out of their own pockets. In many circumstances, courts in SA have made adverse findings against companies at a board level instead of holding individual board members personally liable for decisions they have taken on behalf of a company and shareholders.

Ziegler SA believes that the SA Express board, led by chair Tryphosa Ramano, has a chance to put the airline on a profitable path and avoid its implosion if it acts fast by placing it under business rescue, a process that is provided for under the Companies Act that intends to save companies that are financially distressed by restructuring their operations. It enables a company to continue operating while being restructured, temporarily suspending debt payment obligations, saving some jobs and cutting costs in the process.

Alternatively, Zeigler SA wants the airline to be liquidated, which would signal the death of SA Express because its 1,000 employees would lose their jobs, airline operations would be shut and a fire-sale of assets would ensue to settle outstanding debt.

In the interim, Ziegler SA said board members are not “taking positive steps” to alleviate and prevent further decline of SA Express’ financial position.

Despite the efforts by the board to turn SA Express around, the airline is technically insolvent as its current liabilities exceed its current assets by R374-million during its 2019 financial year. It recorded a loss of R591-million in 2019, more than three times the previous year’s R162-million loss. The auditor-general was unable to express an opinion on SA Express’ financial statements because the airline’s liabilities couldn’t be confirmed. The auditor-general also found that management didn’t exercise effective oversight responsibility for the airline’s financial and performance reporting, and compliance with legislation such as the Public Finance Management Act. 

SA Express responds

William Mokhare SC, acting for SA Express, hit back at Ziegler SA, saying the company’s desire to slap the directors with a personal cost order “came from nowhere” as “board members have not been individually cited in Ziegler SA’s court papers”. 

Mokhare described Ziegler SA’s urgent business rescue application as a “sham”, adding that the company doesn’t know where the government (SA Express’ shareholder), would find additional funds that are vital to kickstart the business rescue process.

“SA Express’ shareholder is the government. With the deafening silence of the government (about the additional funds), the business rescue SA Express (ordered by a court) is simply a sham… and a non-starter.” Judge Fiona Dippenaar reserved judgment on the matter. BM