Low-cost airline Mango was told by Minister Pravin Gordhan’s department of public enterprises (DPE) to carry on trading, even though it was effectively bankrupt and continuing to do business may well have contravened the Public Finance Management Act (PFMA) and possibly exposed directors for failing to carry out their fiduciary duties.
It appears from correspondence seen by Saturday Citizen, at the end of May last year, the airline’s management and board of directors discussed draft correspondence that contained desperate pleas to the DPE – which represents the government as shareholder – to have the company placed in business rescue.
While it is unclear what the final content of correspondence to the DPE was, the director-general sent an e-mail to Mango in recognition of receipt of a letter. In it, the department – which reports to Gordhan – responded with instructions to be patient and to carry on regardless.
Gordhan’s position was made clear in the correspondence – there would not be another business rescue process under his watch.
More than 12 months later Mango is still flying, even though the airline was grounded a few weeks ago for non-payment of bills to Airports Company South Africa (Acsa).
In September, it was nearly grounded due to non-payments to SAA Technical. As a state-owned company, Mango is subject to both the PFMA and the Companies Act, which provides that the individual directors and the board as a whole carry full fiduciary responsibility.
This, in turn, raises the question whether Mango’s board should have placed it in business rescue or liquidated the company, despite the shareholder’s position.
Both Acts empower a board to do so without sanction from the minister of the DPE. A total of 749 Mango staff members have kept the business going and at least effectively part-funded the business by taking voluntary salary cuts.
Unlike at other state-owned companies, Mango staff refrained from industrial action in protest and remain in limbo as Mango adds inventory week by week.
The resilient staff also faced angry customers during two days of grounding at the end of April, despite not knowing whether a pay cheque would arrive or not.
In its first decade, Mango was profitable.
Saturday Citizen sent a series of questions to the DPE’s Richard Mantu, SAA board chair Geoff Qhena via its corporate affairs office and Mango chair Peter Tshisevhe.
Despite a two-day window and reminders, the DPE and SAA did not respond, while Tshisevhe responded only in his capacity as chair of law firm TGR Attorneys, declining to answer any Mango-related queries.
When asked whether he was prepared to respond in his capacity as chair of Mango via WhatsApp, Tshisevhe said the journalist’s request was tantamount to harassment.
According to a dissection of the Companies’ Act by Werksmans Attorneys director Eric Levenstein on its website, financial distress of a company is defined when “it appears to be reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable within the immediately ensuing six months, or it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months”.
In the draft letter for discussion, Tshisevhe states “without the R30 million in restart support, Mango cannot commit with any certainty to the restart of operations in June 2020”.
To date, Mango has not received a R819 million bailout, expected to only materialise after parliament approves the Special Appropriations Bill next month.
The Democratic Alliance’s Alf Lees said: “There seems to be little doubt that the SAA subsidiaries and Mango, in particular, have been insolvent for a very long time that likely precedes the December 2019 start of the farcical SAA business rescue process.
“The secrecy displayed by Pravin Gordhan … seems to indicate the SAA subsidiaries have long been trading recklessly as defined in the Companies Act and that the directors must be held accountable.”
Wayne Duvenage of the Organisation Undoing Tax Abuse (Outa) added: “Its creditors can now force Mango into liquidation and as its debt has mounted further, raising even more serious complications for the airline.
“Outa believes the current approach to try and divert part [R2.7 billion] of SAA’s business rescue plan funds [R10.5 billion] to assist subsidiaries has serious legal ramifications and possibly even be subjected to a legal challenge.”