OUTA makes submission on Special Appropriation Bill on SAA
The Organisation Undoing Tax Abuse (OUTA), who today made a submission to the standing committee on appropriations, says notwithstanding OUTA’s stated position that SAA should not be receiving ongoing bailouts in the first place, the purpose of their submission is to ensure that the approved business rescue plan (BRP) of South African Airways (SAA) is implemented in accordance with the terms approved by SAA creditors in June 2020. “We want to ensure that the legal protection afforded to SAA’s BRP under section 152(4) of the Companies Act is meaningfully protected by Parliament and not subverted by the Special Appropriation Bill,” says Adv Stefanie Fick, OUTA’s Head of Accountability.
Earlier this week, OUTA wrote to the minister of Public Enterprises, Pravin Gordhan, and other officials involved in SAA’s business rescue to stop the diversion of R2,7bn from business rescue funds to three of SAA’s subsidiaries (SAA Technical, Mango and Air Chefs). The money is rumoured to be used to “purchase equity” in the subsidiaries. OUTA maintains that the diversion is not authorised under the BRP.
According to National Treasury, R7.8 billion of the allocated R10.5 billion was transferred to SAA during the 2020/2021 financial year. The balance of R2.7 billion still payable by government for the full implementation of the BRP, is now sought to be reallocated to SAA Technical (R1,663 billion), Mango Airlines (R819 million) and Air Chefs (R218 million). However, the BRP does not allow for any portion of the R10,5 billion to be transferred to any subsidiaries. “The legal basis for this reallocation is unclear,” Fick says.
Should government fail to comply with its commitment to allocate the entire R10,5 billion towards the restructuring costs of SAA, it would result in the BRP not being fully implementable in accordance with its terms, which could prejudice the successful restructure of SAA and the position of the stakeholders who approved the BRP.
Whilst the Special Appropriation Bill, if approved by the President, would be an Act of Parliament, the effect thereof would be akin to subverting the BRP by providing the government with a mechanism to “amend” it after its adoption. “This would inevitably compromise creditors' claims to their prejudice, thereby exposing the whole process to uncertainty and possible corruption,” Fick explains.
Wayne Duvenage, OUTA’s CEO, says the organisation represents taxpayers who foot the bill for state-owned entities (SOEs) through paying their taxes, and as such OUTA has a direct interest in how SOEs are run. “It is in the interests of justice that the public interest is both advanced and protected where funds under the administration and control of the government are used to ‘bail out’ SOEs.”
OUTA says it is of even greater concern if bailouts of SOEs happen without following due process. “In this case, the three SAA subsidiaries are being bailed out indirectly without following the same processes as when SOEs are bailed out,” says Duvenage.
“At OUTA we have always maintained that government should stay out of the business of doing business, and that SOEs should be run properly. The current SAA BRP debacle and the bailing out of these three subsidiaries is yet another example of poor management and a total lack of transparency and accountability. If the subsidiaries are not in business rescue themselves, we should assume that they are not in financial distress. If they are, one must ask why it is now necessary to seek a special appropriation.”
Fick says OUTA’s primary objectives with the submission are to ensure the protection and advancement of the Constitution, as well as the promotion of effective protocols and enforceable taxation policies free from unlawful squandering, maladministration and corruption. “We also want to make sure that scarce resources, which government previously approved and committed for a particular purpose, are not reallocated for another purpose without following a consistent and due process. Our submission also aims to protect SAA creditors and ensure full adherence to approved BRP.”