Business rescue practitioners in SA likely to be much in demand
CAPE TOWN - SOUTH Africa is likely to face more business rescues than it did last year through the Covid-19 pandemic and there is a real danger of there not being enough business rescue practitioners to deal with it.
This was according to Cliffe Dekker Inc Business Rescue, Restructuring; Insolvency Sector head and director Tobie Jordaan, who in an interview with Business Report, said yesterday that government data shows there were 233 filings for business rescue in the seven months between April 7, 2020, and the end of October, the period of the lockdown, and 54 percent were in Gauteng.
He said if one considered that there were 373 filings for business rescue in 2019 in total, the overall number of filings in 2020 was not likely to be much more than in 2019.
Some of the current higher public profile business rescue proceedings under way are the airlines SAA and Comair, retail store chain Edcon and handbags and luggage store chain House of Busby. However, Jordaan expected the number of new filings to be much higher this year.
He said it could be because the government had not amended business insolvency legislation and no temporary insolvency relief measures were put in place to address the economic devastation brought on by the extensive lockdown that had left the South African private sector in need of desperate rescue.
“Most boards decided to hold out through the lockdowns over a period of extreme uncertainty and little economic activity, and then there was the second wave of the pandemic and now there is even speculation of a third and fourth wave,,” he said.
On top of all this, many companies were already in financial distress prior to the pandemic due to the weak economy, said Jordaan.
“The most common problem we see is directors that have left it too late to commence business rescue in order to save the company from insolvency proceedings. It is important for directors to seek guidance and advice in instances where a company may be financially distressed in order to avoid incurring personal liability,” he said.
As at October 7, 2020, there were 361 business rescue practitioners, and only 23 percent, or 85, were senior business rescue practitioners.
Business rescue practitioners are ranked in terms of junior (with at least five years’ experience); experienced (with more than five years’ experience) and senior (with more than 10 years‘ of experience).
Jordaan said there are generally two ways to define a successful business rescue, the first being the restoration of solvency so that a company avoids formal liquidation proceedings, while the second is to provide creditors with a better return than what they would have obtained from liquidation proceedings.
Jordaan said typically, an unsecured creditor might only get back one to two cents in a liquidation, so if business practitioners could obtain four cents or more in a rand, this could also be regarded as a successful rescue.
He said much depends on the circumstance, size and complexity of a company when it comes to a successful business rescue, and often a business rescue might simply seem to be a liquidation in disguise.
“There has been a loss of confidence in the business rescue process over the last few months due to questions in the press about fees (which are regulated) and other issues surrounding the business rescue process. But there are many other positive stories. We need to focus and showcase the success stories, where employees are paid in full and practitioners are not criticised for their fees,” said Jordaan.