The Chairperson emphasised the gravity of the circumstances under which they met, considering that the Portfolio Committee had taken a resolution to subpoena the liquidators of South African Express (SAX) to appear before it if they had not been present at this meeting. In response, the liquidator expressed sincere apologies about his team's nonappearance the previous week. The invitation to Parliament came to their attention on the day before the meeting and this did not give them sufficient time to prepare a presentation which would do justice to the Committee’s concerns. He apologised for the offence to Parliament.
The liquidators presentation noted the legal duties of liquidators, the reasons for seeking the extension of the provisional liquidation, the assets and cash reserves of SAX and the next steps in the liquidation process. The main reason for seeking the extension from June to September was in an effort not to exclude the option of an investor assuming equity or ownership of the business and perhaps taking cession of the claims to pay employee salaries. It the liquidation was made final on the 8 June, this option would have been excluded by as a sale of assets would be required immediately. It was noted that the liquidators are paid only at the end of the process and they had spent R300 000 of their own money to gain technical expertise from former SAX employees to reduce the bond of security over the SAX assets from R1.8 billion to R113 million.
The Committee asked a number of questions to both the liquidators and the Department. Members were deeply concerned about the treatment of SAX employees and asked why they were being treated differently to South African Airways (SAA) employees. They asked for clarity about the actual stage of the liquidation process; why investigations were happening during liquidation rather than during business rescue; and why the liquidation application was not appealed by the Department before exhausting the alternative options suggested by the business rescue practitioners (BRPs). Members asked what value lay in gaining an extension on SAX licences and how this would attract investors and how many investors there were. They insisted on an investigation update of former board members and executives who mismanaged SAX finances and did not submit employee tax to the South African Revenue Service (SARS) and UIF payments for 18 months. What efforts had been undertaken to hold them to account and apply consequence management? Why had the SAX CEO been transferred to be Transnet CEO in light of this? The Department of Public Enterprises (DPE) had to account for its lack of oversight over SAX and all state owned companies.
Members were concerned for the safety of SAX employees protesting outside the DPE offices during Level 3 lockdown and asked DPE to take the employees into their confidence on what is going on so that they could go home. Finally, the Committee committed to pointing stronger fingers at those who should be held accountable. Although the Deputy Minister said he was not fully delegated to answer their questions about corrupt officials and a full account to South Africans on the timeline of deterioration at SAX, he committed to take the request to the Ministry and assured the Committee that they would return to engage on this. The DPE Acting Director General suggested that DPE as the first line of oversight and Parliament as the second should ensure that the best people are appointed to board directors and executives of state owned entities in the future. This has not been done up to now and this is how the SOEs got to this point.
In closing the Chairperson emphasised the importance of accountability and said that in subsequent meetings with law enforcement, the Committee would be pressing for arrests, however, more immediately, the Committee would schedule hearings with the SAX former board and executive members.
The Chairperson expressed the hope that those who are still youth, which in South Africa includes those under the age of 45, had a meaningful day of reflection on the history of the youth in this country on Youth Day, and wished them a happy Youth Day. He welcomed DPE and the SAX liquidators. This meeting was intended to transpire last week; however it was unable to due to the unexplained absence of the liquidators. At that meeting the Committee resolved to schedule another meeting this week with the liquidators. At the same time it began a parallel process of preparing subpoenas to summon the liquidators in the event that they did not appear at this meeting. Failure to attend a parliamentary meeting is totally unacceptable. He was sure they would explain themselves. Given the gravity of the situation at SAX, the Committee has kept a firm eye on the developments, particularly for the collective interests of the South African economy, the taxpayer and the workers. It expects the highest levels of professionalism and compliance and will not negate these requirements as a baseline for oversight and accountability.
The Chairperson noted a complaint about a Member being unable to connect to the virtual meeting and asked the ICT team to assist.
Deputy Minister’s introductory response
Deputy Minister Phumulo Masualle said the Chairperson had given a fair summary to the meeting’s background. Last week he had represented DPE and issued its apologies to the Committee and made a commitment to remedy the absence of the liquidators. He introduced Mr Aviwe Ndyamara and his colleagues as the team of liquidators who were present. The Acting Director General, Mr Kgathatso Tlhakudi, and Department Head of Legal Services were also present. On the forwarded apology from the previous meeting, Mr Ndyamara would speak to this.
The Chairperson thanked the Deputy Minister and permitted the liquidator to introduce his team. The reason the Committee needs the liquidators to appear before it is because they are the accounting officers for SAX and whatever transpires in the processes of the company, the liquidators are the ones who can expect to appear before Parliament.
Mr Aviwe Ndyamara thanked the Committee for the opportunity to appear before it. By way of introduction, he explained the facts of their non-appearance the week before. He confirmed that indeed they did receive the invitation on the Friday at about 16:00. However, subsequent to that there were other emails sent as it is liaising with the Department on various matters. The invitation only came to their urgent attention on the Monday before the scheduled meeting on the Tuesday, when they were due to brief Parliament with a proper presentation. This is not an excuse on their part and he sincerely and profusely apologised for their non-appearance. He insisted that there was no intention to undermine this process or to offend the Members of Parliament. They thought it would be more just and would ensure a more meaningful discussion if they were given an opportunity to give a proper report. The report deals with the legislative framework that governs the process. Indeed, it is unchartered waters for practitioners and for the industry to account to Parliament, however they respect the process and at all times they would remain accountable and transparent. He expressed hopes that their apology as liquidators would be considered favourably. Again, he sincerely apologised for the misconnect the previous week and asked the Chairperson if he had the Committee’s permission to continue with the presentation and if the Committee had received it.
The Chairperson noted receipt of the presentation and said that he noticed that the presentation speaks at length to the legal framework and explanations about what it is he needs to be doing and that he thinks that the substantive matters only really begin at slide 14, although he was subject to correction. He asked that the legal obligations be dealt with briefly and to concentrate more on the substance of SAX concerns so that time is saved. As for the apology, he was sure that the Committee had heard him and that the Committee would consider it, however, communication remains key. The liquidators put the Committee in a very difficult position the previous week where it had to form a resolution about a subpoena. It should not be this way. The Committee will consider the apology at a later stage. He asked that he introduce his team and begin.
SA Express (SAX) liquidation process: briefing by Liquidator
Mr Aviwe Ndyamara introduced the team of joint provisional liquidators as Soria Marais, Samantha Margolis–Pantellias, Clifford Maredi, and Kgashane Monyela who should be all on this platform.
Legal implications of liquidation
After the successful application of the creditors for liquidation on 28 April 2020, Mr Ndyamara explained that the Office of the Master of the High Court appoints and supervises liquidators. Once a company is in either final or provisional, liquidators are appointed to see through liquidation proceedings from beginning to end. These proceedings can take anything from six months to three years and the duration depends on the nature and size of the estate as well as the complexity of the transactions it entered into.
Management of the company
The company remains a corporate body and retains its powers, but from the date of provisional liquidation, it will cease to carry out business except insofar as is required for the winding up of a company. From the date of winding up, all the powers of the directors cease, except for actions which would be sanctioned by the liquidators. The general duties of liquidators are found in sections 391 to 410 of the Companies Act, and the relevant sections state the liquidators ‘shall perform’ the duties stipulated. General duties include proceeding without delay to recover and take possession of all the assets of the company, to apply such assets and property in satisfaction of the claims of the liquidation, creditors’ claims and to distribute the balance, if there is a balance, to those entitled to receive those dividends. The specific duties of liquidators include giving information to the Master of the High Court and facilitating the Master’s inspection of the books and records of the company. Liquidators must also examine the affairs and transactions of a company before its liquidation to ascertain if any present or past directors or officers have contravened the provisions of the Companies Act, or committed any other offences prior to liquidation. Where appropriate, liquidators must report any grounds to disqualify a director. Liquidators also have the duty to submit a report within a few months of the liquidation, setting out the shares issued by the company, its estimated assets and liabilities, the causes for the company’s failure and the status of the winding up of the company. Of significance, liquidators have to note if in their opinion further examination is desirable on any matter about the conduct of the business.
Creditors’ claims are filed on affidavits, with supporting evidence to prove that the company is in fact indebted to that creditor. Claims must either be filed with the liquidator or with the court where the first meeting of creditors is held. Only creditors who have proven their claim will benefit from a distribution, which is usually a portion of what the creditor is owed. According to the financial management accounts, the creditors of SAX were quantified as being owed in the region of R2.7 billion, therefore, each creditor would have to file a claim and affidavit proving they are owed an amount by the company. Creditors are ranked in terms of the the Insolvency Act. Once the winding up is complete, creditors are entitled to their proportionate share of residue from the company’s estate. Preferent creditors are paid before concurrent creditors. Secured creditors are those who hold security for their claims and are paid from the proceeds of the sale of such securities. Mortgage bonds and instalment sale agreements are examples. Concurrent creditors and preferent and secured creditors whose claims have not been satisfied in full are paid out of the residue of the estate and are the last to be paid.
How liquidation is terminated
Once the company’s affairs have been wound up and the liquidators complied with all the requirements of the Master of the High Court, the liquidator may apply to the Master for a certificate to that effect. The Master shall then, when issuing the certificate, consent to the reduction of the bond of security by the liquidator to the stated amount for cancellation. The liquidation and winding up proceedings will then be terminated. This happens after the liquidators have drafted the last liquidation and distribution account and paid all the creditors in accordance with that account.
Status of provisional liquidation
The extension of the provisional liquidation has been approved by court, as well as the extension of the powers of the provisional liquidators. The Master of the High Court required a bond of security to the tune of R1.8 billion. The premium payable would be about R9 million per annum. It was imperative for the liquidators to take charge, do an independent evaluation and then be in a position to give a fair market value for the assets of SAX. After the finalisation of an interim valuation, the liquidators managed to reduce the bond of security of SA Express from R1.8 billion to R113 million.
Payment of employees
In collaboration with Unemployment Insurance Fund (UIF), employees have received assistance for the months of April and May and employees have received this. Employee claim documents have been processed and claims will be made against the company. On the date of winding up, all creditors had to prove their claims. It is unclear at this at this stage if there will be any residue left to pay the employees.
Cash and reserves as of date of appointment
The amount in the SAX bank account at this point is about R800 000. Amounts were then ring-fenced subject to various employee insurance benefit claims. The former payroll manager was appointed to assist the liquidators with an audit and reconcile and identify which former employees must to benefit in terms of the insurance products on the R800 000. Accordingly, the liquidators were not in a position to utilise these funds. At this point, the liquidators are investigating what SAX has in assets, who its creditors are and what the quantum is to reduce the amount of the bond, which the liquidators have managed to do. The liquidators’ priority at the moment is to value the known assets of the company. Accordingly they requested assistance from some of the former technical SAX employees to fulfil this obligation. In light of employees not being paid, the liquidators took cognisance of this and have used their own money to gain assistance, to the tune of R300 000, to fulfil their functions as liquidators.
Why the extension was sought
If the extension had not been granted on 8 June and the final order of liquidation was ordered, the liquidators would have been left only with the option of disposing of the assets. The extension has given them an opportunity to engage in a sales or investment process before the SAX licences expire. There are two licences scheduled to expire at the end of July and one scheduled to expire at the end of December 2020. The liquidators hope to apply for an extension of the licences as it broadens the opportunities in looking for an equity investor. Since the extension was granted, they now have the option to investigate the option of investment and equity, rather than a pure sale of the assets.
Payment of liquidator
The liquidator is paid last and it is an entirely different legislative process to that of the business rescue practitioner (BRP). For example, if the full winding up takes 24 months, maybe 18 months, the liquidator will be paid only after the complete winding up and the Master has confirmed the liquidation and distribution account. The account may then be inspected by any affected person as it lies with the Master and if there is any objection, the person may do so. Liquidators only get paid once the liquidation and distribution accounts have been framed, lodged and confirmed by the Master of the High Court. These accounts have not yet been framed as they can only be framed after a sales process has taken place and the creditors have proven claims against the company. Although the liquidators have not received any payment, they have thus far expended their own resources to the tune of no less than R300 000.
An extension of provisional liquidation was applied for and granted. The liquidators intend to continue investigating the affairs of the company and engage in a sale or an investment process. They are not yet in a position to quantify the costs of the sales process, however all expenses incurred will form part of the liquidation’s administrative expenses. The liquidators were currently in the process of engaging with seven interested parties, as of that morning. The next route for the liquidators is to proceed with a sale or investment process. They will either attract an investor or in the alternative, pursue the disposal of the airline to satisfy the claims of the creditors.
Mr R Lees (DA) asked the Deputy Minister why SAX is being treated differently to SAA in its treatment of employees. He asked who is meeting with SAX employees currently standing outside the DPE office and asked if they are being treated fairly. He asked the liquidators what would trigger a sale to an interested party. He asked if the liquidators have had any direction from DPE, the Deputy Minister, the Minister or any other person in government about to whom they may or may not dispose the assets or the whole airline. He asked if there have been any restrictions placed on the liquidators or attempted to be placed on them. In the previous presentation, the liquidators indicated that there was a bank that was prepared to provide post-commencement funding, but that did not materialise because the bank required a government guarantee. He asked why the government guarantee was not given. On the amount owed to SARS, he asked to be corrected but his understanding is that these amounts had not been paid in over a year. He asked what steps have been taken by the liquidators to hold to account the accounting officers. He asked if charges had been laid, on what basis the amounts were not paid and, particularly, if any attempt has been made to hold accountable the previous SAX CEO, Ms Siza Mzimela, who left for a top position at Transnet in April. He noted the extension until 30 September granted by the court and the licences due to expire on 31 July. What are the liquidator hoping to realise for these licences, is it R20 or R200 000 million? On what basis do the licences make it attractive enough to increase the liquidation costs? Every day that goes by, more costs are incurred and the chance of a dividend getting paid to creditors becomes increasingly unlikely. He was curious since the liquidators have expended R300 000, but not yet billed the company for the costs of its team. What exactly are the liquidators going to try and recover come September?
Mr S Somyo (ANC) asked which process the liquidation team is currently engaged in. How would they tag their current status, so he can understand when they would consider engaging in the sale process? Have they quantified the amounts so that the team can engage with its creditors? Has the company any assets to leverage regardless of the liquidator choosing the investment or sale option? There has been great progress in reducing the bond from R1.8 billion to R113 million. He asked what Mr Ndyamara's choice would be – was he looking for investment or sale of the assets.
Mr B Hadebe (ANC) asked what will happen after 31 July if they have not dealt with the investment option or sale of assets. What will happen to the employees if there is no residue to pay them? At what stage are the liquidators at in examining the company affairs and transactions as part of their mandate to ascertain if there are directors and officers who have contravened legislation. He asked this because R150 million is owed by SAX to SARS for the past 18 months. Employee taxes were deducted but that money was not paid to SARS. In March and April, they had to rely on the COVID-19 UIF TERS relief fund to pay the employees. He asked if the liquidators have investigated this and at what stage of the investigation they currently are.
Ms B Swarts (ANC) said she feels that the liquidators are all over the place about what they want to achieve. They are more interested in the impact of the licences. There is no clarity on whether they intend to charge interest on the R300 000 they used of their own money, and if so, how much interest would be charged. There is no indication of how employees will be affected by non-payment. She asked for clarity as one minute they were talking about liquidation and the next they were excited about an extension and looking for a purchaser.
Ms V Mente-Nqweniso (EFF) noted the duties of the liquidators. Liquidators must report any grounds to disqualify a director. UIF was not paid over, employee tax was not paid over and funds allocated to the company were not spent appropriately. How many directors were linked to the investigations by the BRPs. She asked if these directors have been identified and handed over to the Department for them to be dealt with. She asked if the directors who caused chaos and plunged the company into this financial crisis are still being paid. Liquidation had begun, but third parties still had full access to the aircraft and to the stores, such as by the lessors of the aircraft and a company called Lighthouse which conduct aircraft repairs. This access can devalue assets as people can steal items. She asked why third parties can access the site as her experience of visiting SAA revealed that a number of items were being stolen.
The Chairperson said that the Deputy Minister had questions to answer. However, the liquidators seem to be at the investigative stage of everything. He asked the liquidators to explain the full extent of the mess they have found. The flip side of this is that the Department must explain its own role, if constructive or destructive, so that the Committee can understand what has caused the mess. If the Committee does not move from the correct point of departure, it will make careless decisions about SAX.
To the Department, he asked for knowledge about the extent of consequence management. To the liquidators, he asked if they or BRPs had instituted consequence management at SAX. It is fundamentally important that the Committee ensures that the people responsible for the collapse of SAX are held accountable for it. If this has not happened, or is not happening, or is not on the radar of either the Department or the liquidators, then the Committee needs to devise this process. It was clear that corruption was at the centre of the collapse of SAX as it is dealing with a company that did not submit its financials. The missing link remains an integral part of the puzzle as they are not doing justice if they pretend that the liquidation process exists in a vacuum. It must be put in its context and that context is the systemic collapse of the institution, deliberately so, by certain sections of its management and its board in the past. The Committee needs to know where those people are who need to face the consequences of their actions. He would like the liquidators to comment, however he was placing this squarely on the Department so that it can get a sense if these processes are being engaged with honestly and for the collective interest or if the process is just a cosmetic exercise to shield people from their actions.
Deputy Minister response
Mr Phumulo Masualle, Deputy Minister of Public Enterprises, replied that the SAX challenges have a context within which they evolved to the point they are today. Along the way there has been a number of interventions about actions by the board, which are still in place, however many of its members have resigned for a variety of reasons given the introduction of the business rescue. The board that came into office in 2018 was charged with accomplishing the SAX turnaround as a number of aircraft were grounded when they came into office. Cases for prosecution would have been filed by the board and the executive management. These would be dealt with by the Department’s investigative authorities and this was part of its attempt of getting to the root of the corruption seen at the airline. As much as these questions should be asked continually, it must be appreciated that there is background for which DPE can give proper account of what happened at different stages. There were funding challenges and money was made available specifically designed to deal with guarantees or perhaps with debt. There was, however, a lack of assistance to help the airline to grow its footprint.
The Deputy Minister replied to Mr Lees’ question about whether there are SAX employees at the DPE offices saying that he was not at the office. However it is policy that anyone who comes to DPE with concerns will be attended to by DPE. He agreed that there should not be a difference in SAA and SAX and the only difference is that when there are two companies and their employees are dealt with lawfully, they are dealt with separately. The situation was unfortunate and DPE ought to revisit the matter to see how to create equity in the treatment of the employees. Mr Lees’ concern is on the one hand justified due to the plight of the employees but, on the other hand, measures are put in place even in the worst scenarios to try and receive a better deal for workers. Mr Lees is concerned about not elongating the provisional liquidation but perhaps this was a matter for another meeting. The Department was trying to deal with this as best as possible and the liquidators would address the questions about their process.
Mr Ndyamara said that it was the important to separate the two processes of the business rescue practitioners and the liquidators. This was the first presentation the liquidators had made to Parliament. He assumed that Mr Lees is referring to the previous presentation of the BRPs. He was privy to the BRP presentation which had indicated that post-commencement finance was requested. That request was made by the BRPs within the business rescue process. The liquidators, on the other hand, came into office only on 13 May 2020. The BRP application to government for post-commencement finance was refused.
There are statutory payments that were not paid. The liquidators are still in the extremely early stages of the liquidation process. The liquidators powers deem that they will be pursuing Sections 417 and 418 enquiries, where transgressions made prior to business rescue and the provisional liquidation will be investigated. All these matters will be cleared up in that enquiry.
Extension of liquidation
A parallel process is being run beginning immediately – as soon as the liquidators receive their court order. The sales process will begin immediately; however, they do not want to limit the possibility of an interested party who may want to invest in and restart the operation. This is the logic behind seeking the extension. Had liquidation been finalised, the liquidators would have had only the option to deal with a sale of assets process. This would eliminate the possibility of finding an investor to invest in the enterprise.
The liquidators had to rely on the services of former employees to assist them in coming to a reduced and market-related evaluation. Since the employees had not been paid for the previous two months, it was impractical to ask them for assistance without paying them. Any amounts that have been expended will form part of the liquidation’s administration costs. For example, if they conclude a transaction such as a reinvestment in the business or from a sale, administration expenses will be paid from those transactions. The funds utilised for administrative expenses will be paid from the proceeds. The sale process is starting immediately either to sell assets or secure investments.
The February 2020 management accounts reflected R2.7 billion in creditors. The liquidators have since discovered that the realistic amount payable is about R800 million which may exclude the guarantees payable by guarantors. This amount will take the form of claims which the creditors will have to prove against the company in due course.
When the liquidator took charge, the estimated assets were quantified at R1.8 billion. In the past five weeks, despite COVID-19 regulations, the liquidators have managed to reduce this amount to R113 million. The R113 million asset value is what needs to be disposed of. The liquidators are still busy reconciling what is on the books with what is physically there.
SAA owes SAX in excess of R106 million as a debtor and is currently in business rescue. SAX is a creditor but the liquidators cannot expect 100 cents in the rand dividend from the business rescue process. On the books, there is about R200 million owed taking the R106 million into account, which is owed by SAA to SAX.
Bond of security
In an asset based, realistic market, the bond was reduced from R1.8 billion to R113 million. However, there was a large discrepancy between what is known on record and what actually is the case on the ground.
Licences and investors
Prospective investors would have to quantify the value to them of the business with an extended licence as opposed to an expired licence. The liquidators can give them an indication as to the costs of running or restarting the airline. The sale price will deal with the value of the assets and market related issues. The investor would have to quantify how much funding they would need to restart operations. The liquidators' point of departure would be to suggest their evaluation prices and ask them to engage in a sale process.
Unfortunately, if there is no residue, there is no residue, and that is the nature of the liquidation process.
Immediately, the liquidators need to elect if they ought to cancel current leases, and what the impact of cancellation will be on the licences. The leases are costing no less than R24 million a month. If they cancel, they would engage in a sale process.
They are proceeding with a sales process. First step was investigating the state of the assets. Secondly, they are engaging in a sales process.
The process will be published in due course and a transparent process will be followed.
Interest on R300 000
No interest will be charged to the company for this. The sum went to former employees who assisted in the early stages of the liquidation work.
These cost about R24 million a month.
Board director payments
Directors are not still being paid.
Access by third parties
Lessors still have access to their aircraft and are entitled to that. This access is not independent from the provisional liquidators, and if anything happens, these occurrences must be reported to the liquidators. The liquidators are finding that it is extremely difficult to reconcile what is on the fixed asset register with what is actually present in the hangars. Everything is under the control of the liquidators. Lighthouse West has cancelled its lease agreement. It is their asset and they are in control of that process. The process is being supervised by the liquidators; however, the owners are entitled to have access to their asset. At this point there is about R113 million of assets belonging to SAX. Due to COVID, the liquidators have not yet had an opportunity to go to other provinces, but this remains an ongoing process.
The Chairperson said the point made by the liquidator about the fixed asset register confirms the collective anxieties of the Committee. A thorough session was needed with DPE. However, for today, they would continue to engage with the liquidators. From where he sat, the Committee needed to sit with DPE and the previous SAX boards. Something "needs to give" about the appointment of executives. He recalled that the name of Siza Mzimela was cited who has moved to Transnet, but there was also Inati Ntshanga, who was CEO for about seven years. He insisted that these people must be called to account as the livelihoods of 691 employees are on the line and there needs to be follow up.
Mr M Dirks (ANC) said he would like DPE to explain in clear and simple English what happened to bring the company to this point. He was glad that the Deputy Minister said one of the reasons was not meeting emissions requirements as using corruption as a reason is not a good enough reason. If anyone speaks about corruption in the future, he would insist on knowing where the corruption took place, how it was dealt with and how the people have been held to account. The Committee needs to be able to explain to South Africans what happened and what went wrong at SAX. It was a pity that the BRPs were not present and he does not understand why the liquidators were speaking about liquidation and then investigation. He asked whether investigation should not have occurred before liquidation. He asked about the potential investors and said as far as he was concerned, there are no investors, "only vultures". In his view, there was never any intention to save the airline, and the vultures have been swirling around, waiting to swoop in on the airline for next to nothing. He asked that in future DPE comes to explain step by step what went wrong with the airline.
Mr Hadebe said that there are a lot of questions that will remain unanswered as the BRPs are not present. He believes that when the creditors launched business rescue, they would not have done so if there was not a reasonable prospect of rescuing the company. He fails to understand why, when there were several investors at business rescue stage, why the BRPs then applied for liquidation. His main concern is what happens to the employees if there is no residue.
Mr Lees said that it was somewhat sad that the Deputy Minister did not answer his question but attacked his integrity. His questions indicated very clearly his concerns about the costs and therefore the lack of dividends in an extended liquidation process. He asked the Chairperson to remind Mr Ndyamara that this is a Committee of Parliament which needs answers to its questions and if he is unable to give answers, he needs to say so and that the answers will be forthcoming in due course. His questions about the value of the licences remain apt. Mr Ndyamara has said that the asset valuation has been done, and that these licences are an asset of the airline, which is why the liquidation process has been extended. He was not sure who was in the background giving Mr Ndyamara instructions and asked the liquidator to concentrate on what the Committee was saying. Mr Ndyamara has significant accounting and financial experience to be in his position, and so he must be able to give the Committee an estimate of the cost of the liquidation, including the R300 000, if the process goes on until 9 September 2020. He would be astounded if he could not provide that estimate. He asked from where the investors are coming and what exactly what they want. He asked if they are seeking only licences. He thought it unlikely that investors want to invest in a bankrupt company. He asked why it is only the remaining directors assisting and not the ones who have left for new jobs.
Ms Mente-Nqweniso followed up on the investigations. She asked when the names of investigated people will be handed over, because if they do this at the end of liquidation, there will be nothing the Committee can do to ensure that money is paid back. Secondly, the liquidation process was not informed by clear guidance, as it should only happen when there is no other option and the company is at a stage that it cannot benefit anyone and cannot be saved. She asked what will happen if whilst still investigating, parallel to liquidation, they discover that the company can save itself. She was glad that Mr Ndyamara answered the question about Lighthouse cancelling the contract. If one has cancelled the contract, one cannot have access to the SAX stores. Reconciliation of the fixed asset register would continue to be problematic until there are no third parties accessing the premises.
Ms Mente-Nqweniso said when the BRPs came and presented looking for funding, they gave options for the company. Of those options, liquidation was the fifth or sixth option and there has been no explanation what happened to the other options. There were other opportunities which DPE could have undertaken to save SAX. Due to the pressure of creditors and the court process, which was not appealed, SAX ended up in liquidation. She asked why DPE did not appeal liquidation when SAX still had alternatives. If it was because conditions were not met – therefore explaining the refusal of the R164 million government assistance – why was a business turnaround strategy not made before resorting to liquidation?
Ms Mente-Nqweniso said the Deputy Minister spoke broadly about previous boards; however, there was something he was not mentioning. This board had quarterly meetings where they were looking at financial statements. She asked if these financials did not indicate that money was not being handed over to SARS and UIF. On picking up those discrepancies, what did the board do as it is in charge of the company? It is not possible for the Committee to exonerate the board. It is insufficient for the Deputy Minister to laud them as people who did something for the company when in fact they were part of the looting. She asked for an explanation why the financials were not clear to the board or why the board could not read them correctly. Why is the company being liquidated and not exhausting other options suggested by the BRPs? She asked why the liquidation was not appealed. A common practice in the US is that liquidation allows workers to be disadvantaged. This is a problem with the system of liquidation but that is a matter for another day. The Department must be held accountable for the lack of payment to employees. She said that the names of people responsible must be made available to the Committee.
Ms Swarts said that DPE needs to give a concrete timeline. The urgent work by some SAX employees for the liquidators were not ongoing salaries and she asked about the employees contracted by the liquidators. How can liquidators still be reconciling the books because the potential investors are interested in the numbers which the liquidators have given, rather than being interested in a bankrupt company. DPE needs to come back as there is no clarity. She asked if Mr Ndyamara has liquidated a state-owned company before and if so, which one.
The Chairperson said that what is clear is that parallel processes need to be conducted on DPE, previous boards and executives. He does not get the impression that any of these three parties are taking responsibility for their actions. The Committee may need to go back a step to understand what happened at business rescue stage. The Committee needs to find time to engage with the boards and executives and with the audit reports afresh. He asked what aspects of SAX investors were interested in. It boggled the mind that DPE would transfer the former Acting CEO to another SOE as this does not inspire confidence. Be honest with the Committee. The Deputy Minister spoke about the new board of 2018. The Acting CEO, Siza Mzimela, came in at that time. If problems are going to be traced back to 2018, that is when she arrived. However, when the previous CEO, Inati Ntshanga, left, irregular and wasteful expenditure was shooting through the roof t such an extent that the board at the time said they had to let him go. However, the same board paid him about R770 000 to buy him out of his contract which had about four months remaining. At the heart of this, there has been fundamental mismanagement and the immediate point of interaction with these people is DPE, who have the technocrats and experts. All of this transpired on DPE's watch and the Committee sought to understand its role during these events, and if it was a role of interference or interface as no airline can just crash. He asked the Deputy Minister to respond.
Deputy Minister response
The Deputy Minister reassured the Committee that the responses he has given so far have been honest and have not been such that he takes the exchange for granted. He would ask the Acting Director General to speak to the R164 million that was referred to and what its purpose was. Mr Dirks' comments were pertinent and at some point there needs to be full accounting to the populace as to what has happened. However, he was not properly delegated to answer questions, but definitely would take them back to DPE so that an appropriate expression is made to reach that level of taking the people into confidence. Of the limited experience he has had in this environment, the interactions between DPE, the state owned entities and National Treasury have overlapped as funds are not drawn at will by any department. As the board members are South Africans, they can be called before the Committee to account for their fiduciary responsibilities. At the point when there was an attempt to work with SAX in business rescue, funding was sought to revive the airline. When the business rescue process was instituted, DPE held onto the view that the business rescue was possible. They then found out that the post-commencement funding was not to be accessed. This became a sticking point, such that, apart from DPE, the BRPs went to court to apply for liquidation. The Deputy Minister said that since there no post-commencement funding was granted, as shareholder there was no material basis for the Ministry to stand in the way. Whilst there is a sense that the business is able to be rescued, the COVID-19 pandemic threw a spanner in the works as all planes were grounded and this muddied an already muddied environment. However, he agreed in principle that DPE come back and continue its engagement as honestly as possible
Acting Director General response
Mr Kgathatso Tlhakudi explained that the R164 million in the current budget was a guarantee which had been provided to SAX for the leased aircraft in the event that it defaults on the lease payments, government would step in to assist. The amount was not intended to re-capitalise SAX, but intended to pay lessors in the event of the risk materialising in line with the guarantee to cover liabilities from the early return of leased aircraft.. Discussions with lessors continue on how that payment will be made.
DPE remains willing to explain its oversight and explain what has happened to specific state owned entities. He reminded the Committee that SAX has appeared in front of the committee before and the story has played out for several years, even prior to the 2018 board. There has been corruption which has been clearly explained in many well-written articles due bad appointments of boards and executives and which resulted in the resources of these entities being hijacked for other ends. The hole created has been much bigger than expected. For example, government has put R1.5 billion into SAX in the last few years which has not helped. He has a responsibility to request funds from government only when a credible plan has been presented, otherwise doing so would be irresponsible. Unfortunately, no credible plan has been presented since the business rescue and when the funding challenge came up, there were no funds available to appropriate to SAX. What they are faced with is an entity that has clearly failed.
It is unfortunate that it has impacted on people’s livelihoods and people are walking away with next to nothing. He confirmed that there were SAX employees protesting outside the DPE building today and that they would not be human if they did not recognise the pain they were going through today.
Instead of pointing fingers, he suggested that different oversight authorities should be working as oversight authorities going forward—with DPE as the first line of oversight and Parliament as the second—to ensure that the best people are appointed to lead these entities in the future. This has not been done up to now. It does not help to point fingers when they know very well how the entities got to this point.
The Chairperson said that they would be proceeding from a very incorrect premise if they agree that there should not be the pointing of fingers as pointing fingers points the Committee in the direction of accountability. It would be a dereliction duty if the Committee did not point fingers. Ultimately, the shareholder representative in these entities is the Department. Since DPE notes that it is the first line of oversight, the Committee needs to probe to ensure that it performed its duties to the best of its efforts. The fact that they had to be called in because the SAX financials were not submitted is an indication of the problem. It may be a fact that fingers have not been pointed properly or as strongly as the Committee should have that has led them to this point. He implored DPE to seriously engage in consequence management and point fingers in its oversight of the entities. Although DPE spoke about appointing the best of the best, it is in fact DPE who makes these appointments. He asked who is appointing the people because they are not appointing the right people
Mr Dirks fervently said that the ANC will not accept the Acting Director General's response about not pointing fingers as it is the legislature and it is trying to get to the bottom of what is happening at the airlines so that South Africans can understand as even the Committee does not understand what is going on.
Mr Hadebe suggested that perhaps the Acting DG must expand on what he means by pointing fingers. He asked if he was suggesting that the Committee adopt a "Panado or Grandpa" approach so that when you have an ache, you are given tablets and you don’t get to the bottom of what caused the headache to prevent another headache in the future. The Acting Director General correctly points to the fact that the best of the best has not been appointed. This seems like pointing fingers to him as perhaps the Acting Director General was trying to advise them of something. He asked that the Committee give him the benefit of the doubt.
Ms Mente-Nqweniso asked if the Deputy Minister had sight of the document presented to SCOPA on the1 or 2 June about the R164 million. She noted that the amount was conditional and she asked why it would be conditional if it only dealt with the aircraft leases. The financials on the R1.2 billion allocated to SAX was unaccounted for. The fact that those financial statements were not accounted for by the time the BRPs came into the picture, meant that of course the R164 million would be denied. She asked who the executives were that did not account for the management of that R1.2 billion sum. She asked who the officials are that DPE has told the Committee it has charged and on what basis they were charged. She asked about DPE’s own monitoring and evaluating mechanisms as these methods are not sufficient – that is DPE’s responsibility. She could hear SAX employees singing revolutionary songs as DPE is responsible for paying their salaries.
Ms Swarts said that hearing the comments from DPE, she observed fragmentation and felt that it was as if they were not dealing with the same Department. She asked what the DG meant when he said that SAX has presented to the Committee before and if he was suggesting that the Committee had forgotten.
Ms N Tolashe (ANC) said that as South Africa is a democracy, what did DPE intend to do to assist the workers and ensure that they are given facts. These people are risking their lives in Level 3 lockdown by protesting outside the DPE building. She suggested that DPE let the workers know what is really happening so that they are not held in ransom for DPE’s benefit and at the workers’ expense.
Acting Director General response
Mr Tlhakudi apologised and said perhaps his English communication failed him. He was not suggesting that DPE should not account and apologised as he may have used inappropriate words. He meant to say that the deterioration happened over a long period of time. There was an instance of one official being seconded to SAX who was found not acting in a proper manner. In the midst of taking action against this employee, he left the employ of DPE. This oversight work has continued and the reports referred to the Committee.
R164 million lessor guarantee
On the R164 million, a letter was sent on the risk having materialised to the lessors. Now that SAX is in liquidation, the guarantee mechanism can no longer be used as referred to in the letter. Therefore, a separate process is currently being negotiated with the lessors, so that DPE can do good by that liability.
Use of residue for payment of employee claims
It is unclear at the moment if there will be a free residue to satisfy the claims of the employees. By way of example, if the creditors’ claims have been proved for R950 million, the liquidators would have to succeed in a sale of the assets for an amount higher than this, which is unlikely. However, it does not preclude any party of a sale from taking cession of the employee claims for salaries to be paid if they are quantified as a total amount in the agreement.
Value of licences
The licences have no value as they are not transferable. The outstanding amount for licence payments is just over R4 million. The licence valuation has no actual value. The reason the liquidators want to keep the licences active is so as not to exclude the option of attracting an investment or a party buying the entity as a going concern. If an offer is made of this kind the liquidators will enter into what is called a section 155 compromise, which would mean that the licences would vest in the new investor.
Effect of extension on liquidation on costs
The cost of liquidation is costed based on a tariff. The liquidators are currently sitting with lease agreements post liquidation of no less than R22 million. This is an immediate consideration. The liquidator fees are governed by the Act. For example, if the company is disposed of for an amount of R200 million, the liquidators earn 6% of that amount. If they sell moveable assets, the liquidators earn 10% of the total sale of the moveable assets. If immoveable assets are sold, the liquidators earn 3% of the total sale. If they restart operations and trade, the liquidators earn 6% of the turnover in a trading scenario.
Confidential agreements are currently being signed and a report will be given to DPE and the Committee. There are currently three parties interested purely in the sale of the assets; the other four parties are interested in looking at investment and re-starting operations.
Department’s interest in SAX
The Department is purely a shareholder and is not considered to be a creditor. Airline shares vest with DPE; therefore any prospective investor will have to consult with DPE. Another influencing factor for this approval will have to do with the body of creditors who have proved claims. Therefore, any investor would have to go through both the creditors and the body of creditors.
Commencement of sale process
The sale process can begin at any time. However, cost and the ability to continue are considerations for the enquiry. Under normal circumstances, the liquidators would have to quantify the costs of the enquiry compared to the prospects of recovering funds from subpoenaed individuals. The shareholders can begin an enquiry at any point when they are ready, however there is a cost element. If they begin to conduct a sale immediately, there will be funds in the estate from which a portion can be utilised to do the enquiry. However, there has to be an element of a prospect of recovering funds. This can be done in parallel with conducting a sale process.
A meeting was had with the unions to discuss a better deal for the employees. The best position for the employees would be a sale with a free residue to pay employees or an investor option to restart the business.
SAX employees contracted by liquidator
These were limited duration contracts for specific employees who helped the liquidators with the technical market valuation of assets.
Previous experience with state owned companies
He has been involved in other airline liquidations; however, this is the first where government was a shareholder.
The Chairperson said that the problems before them are gigantic. The liquidation must be attended to with the necessary speed and the extension raised an eyebrow. The Committee would be keeping an eye on the speed of the work being done. They may need to schedule meetings with National Treasury and with previous SAX boards and executives to explain their actions and decisions. Further discussions need to take place with DPE so that they can explain fully their standard operating procedures so that these can be tightened up. Something needs to change as it cannot be that left, right and centre, SOEs are collapsing. The Committee still needs to deal with Eskom, before moving onto Transnet.
He would end the meeting here and suggested that questions be sent to DPE and the liquidators for them to respond to by next week Wednesday 24 June. From the Committee side, they would begin a process of scheduling hearings with the former boards and executives to get a sense of their role in the matter. After this the Committee will meet with DPE again. When the law enforcement agencies come in, particularly the Anti-Corruption Task Team, the National Prosecuting Authority, the Hawks, Special Investigating Unit (SIU) and South African Police Service (SAPS), the Committee will then zoom in on consequence management, with a particular focus on SAA and SAX so they can bring the Committee up to speed. There is a semblance of movement as a VBS arrest has taken place. The Committee needs to put pressure on law enforcement to make arrests.
Deputy Minister closing remarks
The Deputy Minister said the Chairperson’s summary sits well with him and that he looks forward to the programme and DPE will avail themselves to further engagement. On the SAX employees at DPE premises, it would endeavour to engage with them to inform them as to what the situation is and what challenges DPE is currently facing. The Department shares in their plight.
Chairperson closing remarks
The Chairperson accepted the Deputy Minister’s apology and asked for Members’ questions to be sent through by tomorrow so that they can be sent to DPE as Parliament is soon going into a recess of sorts and requested that these matters be tied down by the end of the term. It remains important to note that the liquidation process should not strain the taxpayer any more than it should. There can be no assumption that taxpayer resources are infinite. The Committee will be monitoring to ensure that the process is managed appropriately and with the necessary speed and not drawn out to milk the public purse to enrich certain quarters. The Committee will indicate a meeting date for DPE to discuss how it is conducting its oversight as DPE cannot be let off the hook and they must account.
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