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The South African High Court has ordered Public Enterprises Minister Pravin Gordhan to decide in the next 30 days on a rescue bid for South African Airways’s stricken low-cost subsidiary Mango Airlines (MNO, Johannesburg O.R. Tambo), a breakthrough for the airline’s business rescue practitioner (BRP), who has been waiting almost a year for the minister to decide on the ZAR326 million rand (about USD17 million) offer by South African consortium Ubuntu Air Services.
In his ruling on September 6, High Court acting judge AJ Phooko ordered Gordhan to take a decision by October 6, 2023, and communicate the outcome and the reasons for his decision. Should he fail to do so, it would be read that he had agreed to the proposed sale.
The judge declared that Gordhan’s failure to decide on the rescue bid was “unlawful and constitutionally invalid”. The Minister’s failure to decide within three months amounted to “an unreasonable delay and constituted a violation of the right to lawful administrative action”, he said. “I do not see how a delay in taking a decision could be considered rational. The delay in taking a decision in respect of […] the application has, in my view, violated section 237 of the constitution. It is the duty of this court to ensure that the constitutional prescripts imposed on the PE Minister to discharge his duties are adhered to.”
ch-aviation earlier exclusively revealed the identity of the bidder as Ubuntu Air Services, which has made a binding offer for the provisionally liquidated state budget carrier. The consortium is led by AfricaStay, the wholesale tour operating division of family-owned Johannesburg-based Silver Peach Marketing, certain unnamed former Mango executives, and financial service provider DG Capital.
Mango’s business rescue practitioner, Sipho Sono, expressed relief at the court ruling but added the unwarranted delays had made Mango’s restart more complicated than necessary. “It is not clear to me why the government would provide funding to Mango but then block its return to business. It’s counterproductive as far as I can see it. At any rate, the court has now pronounced what needs to happen, and we will know soon enough what the Minister decides,” he told ch-aviation.
According to the court documents, Gordhan was supposed to decide within 30 days after receiving the offer in December 2022. On December 21, 2022, he requested additional information, but on January 19, 2023, Sono informed Gordhan in unequivocal terms that he would not provide more information than the extensive documentation already submitted.
Frustrated by the delays, Sono charged that Gordhan’s recalcitrance was putting the rescue bid at risk. Gordhan had questioned the bidder’s corporate structure relating to foreign ownership, the due diligence performed on the company; the late timing of the bid; and its business plan. According to Sono, all questions had been answered extensively. He claimed Gordhan was leaning towards the “hibernation” of Mango in SAA until budget airline operations could be re-introduced when market conditions stabilised.
Trying to force a decision, the BRP filed a lawsuit in the High Court on February 8, 2023, against Gordhan, the Department of Public Enterprises (DPE), SAA, Finance Minister Enoch Godongwana, the National Treasury, the International Air Services Council, the Air Services Licensing Council, and others. Hearings took place on May 29 and 30, 2023.
Judge Phooko found that Sono’s refusal to provide any further information to Gordhan had triggered an additional, final 30-day period, meaning the Minister should have made a decision by March 1, 2023. “It cannot be said that this application is premature when the PE Minister is by statute bound to take a decision within a specified period but has failed to do so. Accordingly, this application is ripe and rightly brought before this court,” the judge commented.
He dismissed the defendants’ arguments that the final 30-day period for a decision had not yet commenced as Sono had not provided the requested particulars. “The PE Minister was asked by the BRP to consider what is already before him. Therefore, he must take a decision as his courtesy request for additional information has been turned down. […]. The status of the [..] application cannot eternally remain in limbo.”
He also rejected notions that the Public Finance Management Act (PFMA), which regulates the government’s financial management, supersedes the country’s Companies Act, which regulates business rescue proceedings. “In this case, there has been no form of conflict shown. Therefore, the argument to the effect that there is a conflict between the provisions of the PFMA and the Companies Act stands to fail,” he ruled.
The judge pointed out that in terms of the Companies Act, the BRP was in full management control of the affairs of Mango Airlines. “The BRP, who is in full control of the management of the affairs of Mango Airlines, has responded to the effect that he will not supply any additional information. Consequently, the PE Minister, as the relevant treasury, must act with the information at his disposal and either approve or reject the application,” he said.
Mango was severely impacted when SAA entered bankruptcy protection in December 2019 and by the ensuing pandemic. Its debt burden stood at ZAR2.8 billion (USD182.7 million) when it entered voluntary administration in July 2021.
The subsidiary was allocated ZAR819 million (USD53.4 million) from a ZAR10.5 billion (USD685 million) state bailout granted to SAA, however, it only received ZAR225 million rand (USD14.8 million) after Sono threatened legal action for the release of the funds. SAA decided to sell off the budget carrier as part of its own business rescue plan.
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