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Send  Share  RSS  Twitter  15 May 2013

MANAGEMENT: Business Rescue - Success or Failure‘

 





Recent Gauteng Business News

Business Rescue legislation was introduced to rehabilitate companies, small, medium or large, that are still economically viable but financially distressed. A temporary moratorium on creditors’ rights is provided with outside intervention in the supervision of the company, whilst a plan is developed to ensure the company continues on a solvent basis. The underlying philosophy is the preservation of jobs and democratisation of the workplace, says Gideon Bochedi, General Manager, Salvages Credit Guarantee Insurance Corporation

According to CIPC (Companies and Intellectual Property Commission), as at 31October 2012, 934 businesses, including close corporations, private and public companies, either filed Notice to begin business rescue proceedings or approached a Court requesting to be placed in rescue. Three high profile cases were 1Time Airline, B and J Meltz and Blyvooruitzicht Mine.

265 of the companies to which our company has been exposed, have filed for business rescue, 143 of which are still in the process, while 122 have been finalised. Of those finalised, 53 went into liquidation.”

Concerns have been raised around the number of Business Rescue Practitioners (BRPs) available to handle the number of applications. CIPC has accredited 104 practitioners for interim conditional licences, matched by industry knowledge to the projects for which they were nominated. Some practitioners have dealt with 55 cases at a time, while the lowest number is three. Practitioners receive a licence for each project and once the project is concluded, the licence comes to an end. In instances where complaints of non-compliance have been received, CIPC will consider revoking licences.

Some significant developments in business rescue in the year 2012 were: the Court ruled that in business rescue, no preference would be given to SARS voting rights, and they would be treated as “ordinary” concurrent creditors. On enforcement of suretyship in business rescue, the Court ruled that persons who stood surety for the company would not be released from their obligations. A BRP was removed by the High Court with a cost order against him and the original resolution to commence rescue proceedings was set aside. A new order placing the entity into rescue was granted and the practitioner replaced. Furthermore, in one case the term "reasonable prospect" was examined to ensure that it entailed a genuine attempt to achieve the aims of business rescue. It was ruled that the business rescue application had no merit.

Trends which are of some concern in 2013 are: creditors in the process are becoming more informed, are thinking ‘out of the box’ and getting involved in rescue plans. They do not merely accept all information given by BRPs as fact. Creditors are requesting equity stakes in the business as opposed to payouts or they propose extended repayment periods to avoid having to compromise their debt owed. Liquidation applications are being brought by BRPs where creditors are opposing proposed rescue plans; qualifications and suitability of the practitioner are being questioned through court application and impartiality of the practitioner is being attacked. There is a lack of post-commencement financing as working capital to continue to run the business - funders are risk averse and are not comfortable with the process and BRPs. Questions being asked are: when should a BRP file for substantial implementation‘ Should he withdraw from the business as soon as possible to save costs or be involved until all creditors are paid in full as per the adopted business rescue plan‘ How safe is it to leave the business in the hands of the very management that brought about its downfall‘ Is business rescue a long-term or short-term fix‘

In our view, there is a need for a regulatory body to ensure that BRPs have the necessary formal qualifications; that there is personal liability for BRPs who don’t perform, with concomitant claims and disciplinary actions against the practitioners. A rating system to evaluate BRPs' performance and block poor performers is needed.


 
 
 
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