THE fact that most business rescue applications did not result in the survival of the enterprises is not unusual when compared to international trends, says Lara Kahn, a partner at law firm Webber Wentzel.
The business rescue process was introduced in 2011 with the main objectives of saving jobs, as South Africa is struggling to create employment, and of encouraging much-needed investment.
About 30% of all Chapter 11 filings in the US, which is similar to our business rescue process, lead to a successful restructuring. A similar rate for South Africa would be a considerable achievement.
Ms Kahn spoke to Business Day on Friday, after a conference in Johannesburg that examined the progress made 18 months after business rescue was introduced through the Companies Act.
She said there had been abuse of the business rescue process, where companies used it as a defence against creditors’ liquidation applications.
“In all the cases where this has happened the courts have granted the liquidation, because if a company’s creditors have already filed a liquidation application, it is already too late for a business rescue. The company can no longer be rescued. That is abuse,” she said.
The Companies and Intellectual Property Commission (CIPC) said in its 2011-12 annual report it was only aware of one successful turnaround in the period under review, which led to 4,500 jobs being saved. However, CIPC figures do not in include business rescue applications brought before the courts.
More recent statistics indicate that less than 100 companies had been rescued and that about 840 companies had so far applied since the introduction of business rescue. CIPC statistics showed private companies (64%) were most likely to enter into business rescue, followed by close corporations (23%) and public companies (13%). The majority of applications were from the investment sector, followed by wholesale and retail, and manufacturing.
Ms Kahn said the business rescue provisions were complex and needed some tweaking, but were certainly here to stay.
“There has been quite a lot of political investment in this. It came in during a raft of social reform legislation, including the Companies Act that has the business rescue chapter, the National Credit Act and the Consumer Protection Act.”
The unintended consequence of this complexity was the cost of business rescue, Ms Kahn said.
Strategic Turnaround Solutions director Gert Holtzhauzen has previously said one of the downsides of the business rescue process was the legal issue, which added to the costs.
“Creditors arrive at the first meeting with a string of lawyers attacking the process”.
Further, Mr Holtzhauzen expressed frustration with practitioners who were not properly qualified to carry out rescues.
Article Posted On Business Day Live Click Here to see the article