After several months of being “in business rescue”, the plug was finally pulled on 1Time Airlines at 3pm, Friday afternoon. It appears that the big white knight got himself some cold feet, and trotted off into the sunset. I guess the real truth will surface in the coming weeks and months.
Of course this has all been very traumatic for those who have recently purchased tickets, particularly those who paid cash, or by way of EFT, and are unable to claim non performance refunds through their credit card companies. “How are we gonna get our money back?” They are all shouting at radio stations right now.
A good question, and one that needs answering, because these customers have, at the decision of the business rescue practitioner, become creditors, and concurrent creditors at that. Effectively they have lent money to the business, after the start of business rescue proceedings (Post BR).
The answer also holds interest for small business people who find themselves inadvertently supplying their customers who have gone into business rescue.
Most business people are acutely aware of the order of payout in the event of a liquidation: Liquidator, secured creditors, preferent creditors (employees, SARS and general notarial bond holders), concurrent creditors (suppliers and unsatisfied customers).
Once a business rescue (BR) process has been entered into, things change around a bit; it’s as if a new estate has been registered, and finance coming into the new estate ranks above the pre BR claims, and in a different order:
- BR practitioner expenses
- Employees for that portion earned after BR began
- Secured lenders after BR began
- Unsecured lenders and other creditors for any loan or supply after BR began.
- And only then the pre BR creditors in the same order as earlier described.
So new creditors, no matter how insignificant they may feel right now, rank above even the bond holders pre BR.
The point is that ticket holders and suppliers post BR will be ranked in their claims ahead of all the backlog which got 1Time into this mess in the first place. So assuming that the main creditors were fuel suppliers (a reasonable assumption), and I heard on Friday that ACSA was owed more than 100M; they will simply have to wait until the current ticket holders are paid in full, before claiming their first cent.
Now it is also important to note two things:
- The business rescue practitioner (BRP) should not have continued with the BR attempt beyond ten days if he did not reasonably believe that the business was rescuable.
- The creditors at the time the business was placed into BR had to vote on his initial rescue plan at that ten day meeting. They would not have voted in its favour had they not believed that the rescue was achievable.
In addition, the BRP could not allow the business post BR to run into a position where it was trading in insolvent circumstances in its new balance sheet. To do so, opens him up to claims in his personal capacity from thousands of ticket holders.
So it is likely that all ticket holders will get their money back.
As a business owner, you may be able to draw on the above knowledge in dealing with your own customers and suppliers who have gone into business rescue.