Comair: what at first looked like a slick professional process has deteriorated with such speed that it’s now looking almost as messy as the business rescue tragicomedy over at state-owned competitor South African Airways (SAA).
In early May when the Comair board decided to put the company into business rescue it seemed like a sad but necessary and incisive decision given the spending splurge management had been on and the absence of the sort of operating environment that would shelter a heavily indebted balance sheet.
Business rescue is inevitably a fraught process – it essentially involves carving up a limited asset pool among seemingly unlimited creditors.
And increasingly it seems the business rescue practitioners themselves are vying for prime position among those demanding creditors. So it’s not only a fraught process, it’s one that is riddled with conflicts of interest.
But here’s the thing – business rescue practitioners Shaun Collyer and Richard Ferguson signed up for the Comair work in May; at that stage they were presumably familiar with the section of the Companies Act (Section 143) and regulations (Section 128) that deal with payment to business rescue practitioners.
Hourly tariff for BRPs
As Collyer and Ferguson (and many other BRPs mid-way through a ‘rescue’) have frequently reminded us, the hourly tariff prescribed for BRPs has not been updated since the 2011 publication of the Companies Act and regulations. The tariff is “no longer market-related for the specialist skills and expertise required of the BRPs for a company of the size and complexity of Comair,” they explained to creditors as they put in their demand for double the prescribed fees.
That’s a bit like being rolled into theatre for life-saving surgery and your surgical team stopping the gurney to express their deep unhappiness about medical aid rates and asking you to sign off on a 100% increase.
And it’s not just Collyer and Ferguson. It seems none of the BRPs doing large rescues had thought through the ‘un-market-related’ payment issue before scurrying to submit their tenders.
The Companies Act regulations are clear. For a large or state-owned company it’s R2 000 an hour, to a maximum of R25 000 a day. The Companies Act itself (Section 143) allows for additional fees, but only on a contingency basis and any agreement providing for those additional fees must be approved not only by the creditors but also (according to Section 143 (3)(b)) by a majority of the shareholders.
Months into the Comair process there is still no sign of the required rescue plan although there was the brief appearance of a corporate advisory firm, Redford Capital. It had been hired to help the BRPs raise capital for Comair as well as engage potential investors and buyers of the company’s assets. As it happens, Collyer and Ferguson – who were looking for a monthly retainer fee of R250 000 for Redford Capital – are directors of this advisory firm. This is a bit like the surgeon recommending his brother-in-law physician for post-surgery care.
Basically, things on the Comair front, which initially looked so encouraging, have now gone dark.
This BRP process definitely needs rescuing.
Not every company has been hit by the Covid-19 lockdown as hard as Comair.
Last week Vodacom reported a 5.6% increase in group revenue for the three months to end-June. This was hardly surprising given the increased data usage during lockdown.
A little more surprising was the lift in sales reported by cement producer PPC during June as the absence of imports coincided with the initial opening up of the economy.
For Woolworths, a strong performance from its food division once again helped accommodate its draining Australian operations.
Investec keeping mum on its incentive targets for now
The crippling uncertainty of the current situation was probably best highlighted by last week’s rather bizarre announcement from Investec (the bank) about its 2021 remuneration incentive targets.
“Given the prevailing market uncertainty regarding both the short- and long-term impact of Covid-19, the group believes it is appropriate to delay the disclosure of these [(short- and long-term] remuneration incentive targets until later in 2020, when there is more clarity on the business impact of Covid-19.”
The targets will be announced on November 19, which is just four-and-a-half months before the end of its financial year.
In terms of the short-term incentives that’s equivalent to placing a bet just yards before the horses have reached the finishing line.
At least there is some good news, of sorts, from the Independent Regulatory Board for Auditors (Irba): there is no sign of the rumoured resignations by directors who had accepted their appointments six and more months ago, before they knew of the controversial appointment of Jenitha John as CEO. The new board held its first meeting early last week and will no doubt soon be getting down to reviewing John’s appointment.