South Africa | Appeal court rejects Airlink's attempt to recover the R510 million it is owed by SAA

Although disappointed by the judgment, Airlink says it will study the judgment and consider its options. (Supplied)

Although disappointed by the judgment, Airlink says it will study the judgment and consider its options. (Supplied)

The Supreme Court of Appeal has dismissed an attempt by privately-owned airline Airlink to get access to R510 million in ticket sales that state-owned airline SAA had collected on its behalf before it went into business rescue. 

In the view of Airlink, this revenue had always "belonged" to it and was just temporarily being held and handled by SAA. SAA's business rescue practitioners, on the other hand, regarded the money as a debt owed to Airlink, which SAA incurred before it went into business rescue. In terms of SAA's rescue plan, Airlink stands to receive, at most, 7.5c in the rand of what is owed to it. 

The issue before the court was whether the money, paid to SAA prior to it being placed in business rescue on 5 December 2019, should be released to Airlink.

Airlink is an independent, privately-owned South African airline, which operates regional flights in the country and Southern African region.

The Gauteng High Court in Johannesburg had previously dismissed Airlink's initial application and so it turned to the Supreme Court of Appeal.

But the appeals court found that the funds collected by SAA on behalf of Airlink was a debt owed to Airlink and not Airlink's "property". The appeal was dismissed due to business rescue effectively preventing any legal action against SAA.

Under a 23-year old franchise agreement between the two airlines that existed in 2019, Airlink tickets were sold and ticketed through SAA's computer reservations system and SAA was obliged to collect and temporarily hold the funds and pay them over to Airlink in monthly tranches for those tickets flown in the preceding month. Airlink in turn paid SAA for those services rendered. 

SAA defaulted on remitting funds for tickets flown in November 2019 but owed in December. In Airlink's view, the funds collected by SAA on its behalf were never for SAA to keep or spend.

"Shortly after entering business rescue, SAA made it clear it would not honour the terms of its agreement with Airlink. This prompted Airlink to terminate the franchise and to rebuild its business independently of SAA," Airlink says in a statement issued on Tuesday in reaction to the appeal court decision. 

"However, SAA has been able to hide behind the legal veil of business rescue, to withhold and consume Airlink's money, even though it had no legitimate commercial or transactional basis for doing so. Unlike other trade creditors that are owed money by SAA for goods supplied or services rendered, Airlink's claim relates to funds collected on its behalf by SAA for services Airlink provided to its own customers."

The Gauteng High Court had previously rejected Airlink's argument that SAA acted like its agency. It found no evidence to support the contention that the funds belonged to Airlink and were held by SAA on behalf of Airlink. The court concluded that the relationship between the two airlines was rather that of debtor and creditor, and that Airlink had not made out any case for the lifting of the moratorium imposed in terms of the act relating to legal proceedings against companies placed under business rescue.

The appeal court found that the general moratorium on legal proceedings imposed in terms of the act becomes applicable immediately on commencement of business rescue and endures until business rescue ceases and that the moratorium is necessary for the effectiveness of the business rescue procedure.

The SCA also found that the Gauteng High Court had correctly pointed out that SAA had no obligation to deposit the revenue received in respect of Airlink ticket sales in a separate bank account and to hold it in trust as Airlink's property or on its behalf.

Although disappointed by the judgment, Airlink said on Tuesday it would study the judgment and consider its options. It is in the process of launching and resuming flights on a number of new and reinstated domestic and regional routes across Southern Africa. It has also entered into commercial agreements with international airlines like Qatar Airways, Emirates, Air France-KLM, British Airways and United.

SAA's rescue practitioners responded that they have noted the Supreme Court of Appeal judgment.

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