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THE MOST IMPOR­TANT DECI­SION TO BE MADE: WHO TO APPOINT AS BUSI­NESS RES­CUE PRACTITIONER?

IS YOUR BUSI­NESS RES­CUE PRAC­TI­TIONER THE RIGHT CHOICE?
The deci­sion on who to employ as a busi­ness res­cue prac­ti­tioner (BRP) is one of the most cru­cial a dis­tressed com­pany can make. Yet this deci­sion has to be made quickly at a time that is often highly stress­ful and when time is of the essence.

Accord­ing to Prof. Mar­ius Pre­to­rius of the Uni­ver­sity of Pre­to­ria, whose recent sce­nario research con­ducted among var­i­ous role play­ers such as banks and BRPs inspired this arti­cle, the South African busi­ness res­cue scene is, to say the least, rather gloomy. Prof. Pre­to­rius main­tains that too many “experts” are com­ing to the fore (and being appointed) with ques­tion­able res­cue expe­ri­ence and qualifications.

RECENT RESEARCH
These so-​called “spe­cial­ists” are cap­i­tal­is­ing on the lack of reg­u­la­tion in the law gov­ern­ing the cer­ti­fi­ca­tion of the busi­ness res­cue pro­fes­sion. Prof Pretorius’s research sce­nar­ios have brought to light the fol­low­ing con­cerns:
INDUS­TRY CON­CERNS: Cur­rently there is grow­ing unease about the var­i­ous alle­ga­tions lev­elled at the busi­ness res­cue indus­try. These include the following:

  • Process abuse per­pe­trated by both share­hold­ers and cred­i­tors (with the sup­port of their legal advi­sors) to gain time for asset strip­ping (among other things) before even­tual liquidation.
  • BRPs being accused of incom­pe­tence, as well as the charg­ing of exor­bi­tant fees and then pay­ing con­sul­tants to do the work.
  • Banks are blam­ing the fail­ure of res­cue on incom­pe­tent BRPs.
  • Simul­ta­ne­ously, banks are being accused of col­lud­ing with share­hold­ers to vote against the pro­posed plans and then “manip­u­lat­ing” the result­ing liq­ui­da­tion or buy-​outs; thereby pre­fer­ring them­selves over con­cur­rent cred­i­tors. No BRP can really afford to chal­lenge them in court.
  • BRPs are not help­ing them­selves by not report­ing progress in time.
  • Removals and forced res­ig­na­tions are start­ing to hap­pen more regularly.

KEY UNCER­TAIN­TIES that drive the scenarios:

  • Firstly, the direc­tion taken by the busi­ness res­cue indus­try is unclear. Based on the above alle­ga­tions, it is clear that its rep­u­ta­tion is in jeop­ardy and three red flags (BRP and bank feed­back to CIPC, BR audit out­comes and inci­dent reports to CIPC) would appear to be sig­nalling the wrong direction.
  • Sec­ondly, the com­pe­tence lev­els of the exist­ing BRP con­tin­gent are a key con­cern. Pre­vi­ous research has shown that even the prac­ti­tion­ers them­selves acknowl­edge this as a main con­trib­u­tor to failure.
  • Thirdly, sup­port for busi­ness res­cue from the banks is still unpre­dictable but seems to veer towards “not sup­port­ive”. Infor­mally, banks told Prof. Pre­to­rius that “it depends on the busi­ness res­cue prac­ti­tioner”. Recent research by Du Preez (GIBS master’s the­sis) has con­firmed this. This is a key deter­mi­nant for the devel­op­ment of a post com­mence­ment fund­ing industry.

FINALLY CHOOS­ING A BUSI­NESS RES­CUE PRACTITIONER

The most impor­tant deci­sion a dis­tressed com­pany must take is the choice of BRP. When mak­ing this deci­sion, sev­eral impor­tant ques­tions should be considered:

  • Will the turn­around be infor­mal or formal?
  • Does he/​she under­stand busi­ness? Legal and finan­cial knowhow is eas­ily obtained – busi­ness knowl­edge is not. Does s/​he under­stand your business?
  • For how long will the ser­vices of a res­cue spe­cial­ist be required? Plan for a min­i­mum of six to nine months (depend­ing on the busi­ness type).
  • Can the com­pany pay the specialist’s fees? The Act con­tains spe­cific guide­lines on fees and you need to address this at the out­set. Often boards are more con­cerned about the fee than with find­ing the req­ui­site expertise.
  • Will other spe­cial­ists be brought in by the BRP? If so, as part of the fee or at an addi­tional cost? This should be spec­i­fied at the outset?
  • Is the cur­rent man­age­ment will­ing to coop­er­ate “under” the appointed prac­ti­tioner and accept his/​her guidance?
  • Pre­cisely what is expected of the BRP, and are the out­comes in writing?
  • What are the chances of suc­cess in res­cu­ing the com­pany? The res­cue plan requires a fea­si­bil­ity dec­la­ra­tion, but the plan is only pub­lished 25 days after the appointment.
  • Is the com­pany will­ing to let an ‘out­sider’ liq­ui­date or sell key units of the busi­ness if necessary?

KEY CON­SID­ER­A­TIONS WHEN CHOOS­ING: “IT MAY BE YOU LAST DECISION

Once man­age­ment has answered these ques­tions sat­is­fac­to­rily they are ready to select the BRP. This should be done by con­sid­er­ing the fol­low­ing key requirements:

Rep­u­ta­tion. No BRP expects to suc­ceed with­out first gain­ing the con­fi­dence of cred­i­tors, as well as access­ing new sources of credit such as post com­mence­ment fund­ing. A com­pany con­sid­er­ing the appoint­ment of a BRP should check the candidate’s rep­u­ta­tion with lead­ing bankers, attor­neys, accoun­tants, finan­cial advi­sors, fac­tors, and trade cred­i­tors. Expe­ri­ence is the key credential.

Man­age­r­ial skills. As the chief deci­sion maker and imple­menter of new strate­gies, the BRP must be a multi-​disciplined and knowl­edge­able busi­ness per­son. One should look for a per­son who is pre­pared to act assertively, under­stands your busi­ness, is “hands on” and has proper nego­ti­at­ing skills.

Busi­ness res­cue prac­tice knowl­edge: The prac­ti­tioner should have sound knowl­edge of the res­cue indus­try, best prac­tice prin­ci­ples, the leg­is­la­tion that gov­erns the process and the main dri­ving forces. Knowl­edge in these areas will reduce expo­sure and the dan­ger of being attacked by hos­tile affected parties.

Fee struc­ture. Fee struc­tures gen­er­ally con­tain a fee plus costs. Make sure that the prac­ti­tioner does not charge unnec­es­sar­ily for “exter­nal” costs (such as lawyers and accoun­tants because the BRP him/​herself does not have the exper­tise). The fee struc­ture should be clear and fair. Com­pa­nies should make sure they can afford such ser­vices to avoid trad­ing one set of prob­lems for another. The com­pany should insist that the pro­posed con­tract include an incen­tive or per­for­mance arrange­ment, which places a por­tion of the busi­ness practitioner’s con­tin­gency fees at risk.

IN CON­CLU­SION:

A BRP is expected to work quickly and con­fi­dently with a range of par­ties, includ­ing banks, cred­i­tors, accoun­tants, lawyers and oth­ers. It is impor­tant that they are able to build rap­port with these par­ties and any expe­ri­enced turn­around con­sul­tant will already have an estab­lished reputation.

It is impor­tant to check this rep­u­ta­tion and ensure the BRP has good stand­ing in these crit­i­cal areas. Most impor­tantly, estab­lished BRPs have estab­lished net­works that sup­port their busi­ness exper­tise in assist­ing com­pa­nies to move through these dif­fi­cult times. Turn­around prac­ti­tion­ers can step in and imple­ment solu­tions; they can, if required, step into man­age­ment roles and turn your busi­ness around purely because they know and under­stand busi­ness.

Dr Ger­hard Holtzhauzen CEO Strate­gic Turn­around Solu­tions (Pty) Lim­ited
With acknowl­edge­ment of Dr Mar­ius Pre­to­rius’ arti­cle on future sce­nar­ios
Pro­fes­sor – Busi­ness Res­cue, Strat­egy and Lead­er­ship
Depart­ment of Busi­ness Man­age­ment
Uni­ver­sity of Pretoria

— See more at: http://​www​.fmessen​tials​.co​.za/​n​e​w​s​l​e​t​t​e​r​s​/​c​e​/​2013​/​m​a​y​/​a​r​t​i​c​l​e​s​/​s​t​u​r​n​s​.​h​t​m​l​#​s​t​h​a​s​h​.​n​g​K​E​p​4​V​e​.​d​p​u​f

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