Thu., November 8, 2012
One of South Africa's two satellite networks last week filed for "business rescue," a new legal mechanism designed to save and rehabilitate distressed companies rather than liquidate them, The Deal Pipeline reported. That goal may be worthwhile. But the limitations of the concept were manifest over the weekend when domestic carrier 1time Airline abandoned a similar attempted business rescue and said it will file for provisional liquidation. Both cases cast popular light on South Africa's attempts at a Chapter 11-like approach to insolvency. "There's a lot of movement in this space," said Eric Levenstein, a director with Johannesburg-based law firm Werksmans Attorneys, which specializes in insolvency and distress. On Nov. 1, On Digital Media (Pty) Ltd. filed for protection under Section 129 of the country's New Companies Act. A day later, 1time announced that it was grounding all planes and would apply for provisional liquidation after its business rescue professional advised the low-cost carrier that there was "no reasonable prospects of survival." The rescue was abandoned as an unnamed potential investor pulled out of negotiations, according to a statement by 1time CEO Blacky Komani. The airline, which began flying in 2004, applied for business rescue in August with published short-term debt of 320 million South African rand ($37 million). Section 129 provides a debt moratorium while a court-supervised "business rescue professional" attempts to renegotiate loans, contracts and equity holdings. While in part modeled after the American Chapter 11, its use of an outside professional is more akin to Britain's Insolvency Act, which provides for what is commonly called "going into administration" under a court-appointed administrator. Cases such as TopTV and 1time demonstrate why emerging markets must structure legal frameworks to cope with distress as well as expansion and investment in fast-growing economies.