Legal experts have warned Mango that the current terms of its business rescue plan will shortchange its creditors and could lead to the failure of the entire process.
Mango entered voluntary business rescue on 28 July 2021 and has since faced considerable obstacles to its return to the air.
Recently, the High Court in Johannesburg ruled that the proposed business rescue plan cannot be implemented.
This ruling came after Aviation Co-ordination Services (ACS) took Mango and its business rescue practitioner, Sipho Sono, to court over the plan’s viability.
The ACS raised the point of issue regarding the plan’s treatment of Mango’s creditors, which outlined that the claims of concurrent creditors will be ceded to the investor at face value.
Along with this, the remaining funds provided by South African Airways (SAA) will be distributed to creditors after employee claims and restructuring costs are deducted.
This results in each creditor getting approximately 4.43 cents to the rand, which translates to around R44,300 for every R1 million owed.
Legal experts Koos Benadie and Xander Schoeman from law firm Barnard Incorporated have warned that this ‘top-up’ is a major issue that needs to be resolved.
In its current form, the plan will severely shortchange Mango’s creditors and will also force creditors to cede all rights to claim later after accepting the payment.
Notably, South African law makes no provision for the last point either, and those who don’t agree with the plan, even if it is adopted, can’t have their claims taken without consent.
Getting back in the air
Mango was placed on business rescue four years ago due to mounting debt and the government stakeholders’ financial support withdrawal.
Securing alternative investment is therefore essential, and Sono announced that they were in the final stages of concluding a transaction with a selected investor.
If this transaction went through, it would pave the way for the airline to return to regular operations.
However, the recent court issues and concerns raised over creditors will likely stall this transaction and Mango will remain in business rescue for the time being.
Since its entry into business rescue and the troubles suffered by SAA, the South African airline industry has been placed under great strain in recent years.
Mango’s return to operations would go a long way in mitigating this strain and providing South Africans with an affordable flight option.
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