ALF JAMESCOMMERCIAL FEATURES WRITER

THE MAIN focus of business rescue is to avert the liqui-dation route when a company is in distress, which isextremely destructive with minimal recovery, whereas busi-ness rescue attempts to recoup as much as possible tomaximise return for creditors and employees, accordingto Bruce Berry, chief operating officer at Turnaround Man-agement Association - Southern Africa Chapter (TMA-SA).

He explains that business rescue creates a protectedmoratorium against legal action during which time the busi-ness rescue practitioner, who is appointed by the directorsin the case of a voluntary application or by the courts, hasto construct and implement a business rescue plan that iscredible from both the creditors and shareholders’ perspec-tives.

“Within the South African context with a tough eco-nomic climate and poor job creation, business rescue isseen as an option whereby it is possible to retain corporate

value and jobs, rather thandestroying them, which isoften the result in a liqui-dation scenario.

“The business rescueplan determines how tosave the company or partsthereof,” says Berry.

He explains that it isthe function of the busi-ness rescue practitioner torun the company duringthe protected period andultimately to take the com-pany out of business res-cue.

“The TMA-SA seesbusiness rescue as a rela-tively new industry that isevolving. We promote busi-ness rescue, and turn-arounds in the broadersense by not just beingrestricted to the formalprocess that is regulatedby the courts and legisla-tion, but also incorporatingan in f o rma l p r oces swhereby a company canemploy a business rescuepractitioner to turn a dis-tressed company aroundwithout necessarily havingto formally apply for legalprotection or the need to

comply with the construct of various acts.“An informal process offers greater latitude in terms of

time and method, whereas the formal process is prescrip-tive in terms of the Act, which describes when and howbusiness turnaround has to be conducted as well as themonitoring and reporting that has to be undertaken.

“We are trying to promote the use of business turn-around practitioners sooner rather than later, because thequicker a business identifies the reasons for distress thebetter the chances are of a successful turnaround and themore control management executives retain over the busi-ness during the rescue-turnaround procedure.

“The whole purpose of business turnaround is to max-imise recovery to ensure benefit in retaining value ratherthan liquidation,” says Berry.

The growing demand for business turnaround servicesis reflected in the latest statistics on the status of BusinessRescue in South Africa from the Companies and Intellec-tual Property Commission (CIPC) that is responsible for theregulation of business rescue practitioners.

From the 2038 cases since the inception of businessrescue in terms of Chapter 6 of the new Companies Act onMay 1, 2011 to December 3,1 2015:❖ 188 proceedings became a nullity in law;❖ 276 proceedings were terminated by way of filing a

Notice of Termination (CoR125.2);❖ 284 proceedings were substantially implemented by way

of filing a Notice of Substantial Implementation(CoR125.3);

❖ 182 proceedings ended up directly in liquidation with-out a Notice of Termination (CoR125.2) being filed;

❖ In 16 proceedings the court set aside the business res-cue proceedings; and

❖ 1092 proceedings are still in business rescue.Berry says TMA-SA is also promoting the competencies

required for a business rescue practitioner.“We would like to see TMA-SA becoming the formal pro-

fessional body that will regulate business rescue practition-ers, so that we can ensure that the people that are doingcompany rescues have the appropriate competencies andskills, which are: management experience, financial knowl-edge, legal know-how relating to labour company law, andcorporate governance and ethics, which might not havebeen in place before the business rescue operation, butwhich has to be embedded for a successful turnaround.

“Berry says TMA-SA has recently instituted a CertifiedTurnaround Analyst course at the Centre for ContinuingEducation at the University of Pretoria, which deals withthe relevant competencies that a practitioner requires.

“We put a lot of effort into developing our members’skills and competencies within the industry by promotingnetworking and our series of practise notes, which are par-ticularly useful because the industry is still new and evolv-ing.

“For example, there is now a review of Chapter 6 ofthe act and we have done a whole series of practise notesdealing with business rescue and its practical implications.

“Furthermore, TMA-SA links up with other chapters ofTMA globally, for example from Australia and the US,which have more advanced business rescue markets thathave valuable lessons to share about what can be appliedsuccessfully.

“We also have a strong mentoring programme and haverecently instituted NextGen, which is focussing onyounger turnaround and business rescue professionals,”says Berry.

He contends that one of the concerns in the industryare the fly-by-nights, since as the industry currently lacksregulation people can use business rescue for the wrongpurposes, which TMA is trying its best to prevent.

“We are recommending to banks and the legal frater-nity not to appoint a business rescue practitioner who isnot a member of TMA-SA as all our members are boundby a strict code of conduct, breach of which has repercus-sions including being reported to the CIPC,” says Berry.

ALF JAMESCOMMERCIAL FEATURES WRITER

BUSINESS rescue legislation has opened many new avenues for under-performing or distressed businesses in South Africa, according to the Turn-around Management Association - Southern Africa (Chapter) (TMA-SA).

“Business rescue is the legal process in which a financially distressedcompany is given a ‘breathing space’, a moratorium, to organise its affairs,whilst the rights of claimants against the company’s assets are temporar-ily suspended. It provides an alternative to liquidation,” explains AlastairMacduff, chief executive officer at TMA-SA.

He says the business rescue is carried out in terms of the CompaniesAct No 71of 2008 and the Companies Regulations, 2011.

“When a company is in financial distress and cash flow dries up, paniccan set in affecting creditors, employees and management. Knowing thatthe future of the business is in the capable hands of a business rescue

practitioner brings a sense of calm to a process that is unfamiliar and seemschaotic and uncertain.”

Once the business rescue resolution has been passed by the board ofdirectors, it means that the company’s affairs and assets are placed underthe supervision of a licenced business rescue practitioner who will takeover all responsibility from the board of directors and make all future deci-sions and will attempt to turn the business around.

Macduff says the Companies Act recognises stakeholders such as share-holders, creditors and employees, and calls for their participation in thedevelopment and approval of the business rescue plan.

In particular, the act protects the interest of employees, recognisingthem as creditors of the business.

“The business rescue process kicks in one of two ways:■ When the board voluntarily passes a resolution declaring the company

is in distress and placing the company into business rescue, or■ When a creditor, shareholder, employee or organised labour apply to the

courts for business rescueproceedings to com-mence.

“ O n c e t h e b o a r dpasses the resolution, thecompany has a window

period of five days to appoint a business rescue practitioner, that satisfiesthe requirements of Section 138 of the Act, and receive written confirma-tion of the acceptance of the appointment from the said practitioner.

“The company must file the appointment with the Companies and Intel-lectual Property Commission (CIPC) and inform all affected parties of thebusiness rescue practitioner’s appointment.

“During business rescue there can be no legal proceedings against thecompany Business rescue therefore provides a breather for the companyto stabilise its cash flow, apply new management disciplines and turn thecompany around, without any outside interference,” says Macduff.

The business rescue practitioner has full management control of thecompany. He or she may delegate power or responsibility to the board orpre-existing management, or remove the board or pre-existing managementfrom office.

When business rescue proceedings kick in, the directors of the com-pany must cooperate by providing all the books and records to the practi-tioner.

“The practitioner must investigate, as soon as practically possible afterappointment, whether the company has a reasonable prospect of being res-cued. The TMA has issued a Practice Note to its members that sets outthe following guidelines:

“In order for a company to enter and remain in business rescue, theremust be a reasonable prospect that it can be rescued. A company can onlybe rescued by the implementation of a business rescue plan that eithermaximises the likelihood of the company continuing to exist on a solventbasis or that results in a better return to the company’s creditors than wouldresult from the immediate liquidation of the company. Therefore, theremust be a reasonable prospect that a plan can be implemented that islikely to achieve one of these results,” says Macduff.

If the practitioner concludes that there is no prospect of being rescued,he needs to inform the court, the company and all affected parties.

“The business rescue practitioner must, within ten business days ofappointment, organise and chair a first meeting with creditors and employ-ees or their union representatives. The business rescue practitioner mustinform these parties whether he or she believes the business stands achance of being rescued and must therefore have objective grounds for hisopinion,” explains Macduff.

“Once the business practitioner has met with the relevant parties, heor she starts developing the business rescue plan for consideration andadoption by the affected parties. The company must publish the businessrescue plan within 25 days after the appointment of the business rescuepractitioner.

“After the company has published the business rescue plan, the prac-titioner has another ten working days to organise and chair a meeting withcreditors to consider the plan, and decide over the future of the company.

“A company can only be rescued by the implementation of a businessrescue plan that either maximises the likelihood of the company continu-ing to exist on a solvent basis or that results in a better return to the com-pany’s creditors than would result from the immediate liquidation of thecompany,” says Macduff.

In South Africa the CIPC, the former CIPRO, is responsible for theissuing of business rescue licences. Any aspirant business rescue practi-tioner may apply for a business rescue licence; however, the CIPC holdsfull discretion to issue the licence, based on the application and the

factual proof the applicant provides. The business rescue practitioner isremunerated by the company, in accordance to the fixed tariffs for busi-ness recue practitioners.

Two main criteria are vital: good character and integrity, and a solideducation and experience to equip the individual to perform business rescue.

A business rescue practitioner may be removed by a court order (interms of section 130 of the act) on several grounds including incompe-tence, misconduct and lack of independence or conflict of interest. In thiscase the company that nominated and appointed the business rescue prac-titioner must appoint a new practitioner.

Business rescue gives troubled firms breathing space

IF YOU are looking for a turnaround professional to help with yourunder-performing or distressed company, simply go to www.tma-sa.com for a directory of the Turnaround ManagementAssociation - Southern Africa Chapter’s (TMA-SA) businessrescue professionals from various disciplines:● Turnaround practitioners and consultants.● Business rescue practitioners admitted as such under

Chapter 6 of the Companies Act No. 71 of 2008.● Corporate turnaround managers and interim managers.● Attorneys, accountants and financial advisors.● Workout and restructuring executives of banks and Develop-

ment Fund Institutions.● Investment executives of institutional investors, venture cap-

ital and private equity investors, and development funds.The TMA-SA is an affiliate of the international Turnaround

Management Association (TMA).In terms of its license agreement, TMA-SA members share in

knowledge exchange and networking with TMA.Established in 1988, TMA has nearly 9 000 members in 45

chapters, including 32 in North America, and one each in Aus-tralia, Brazil, the Czech Republic, Finland, France, Germany, Italy,Japan, the Netherlands, Southern Africa, Spain, Taiwan and theUK, with a chapter in formation in China.

TMA-SA represents the broader Southern African region whichincludes South Africa, Swaziland, Lesotho, Namibia, Angola, Zim-babwe and Mozambique, although the focus to date has prima-rily been in South Africa.

The TMA-SA is an association incorporated under Section 21of the Companies Act. Copies of the statutory documents areavailable for download from the association’s website in the col-umn on the right.

A Commercial Feature

Turnaround Management Association – SA8

Co-ordinated by: Eugenie Broodryk – 021 488 4795, eugenie.broodryk@inl.co.za, Special Projects, Independent Newspapers, Cape

Need rescue for adistressed business?

Maximising outcomes for shareholders, creditors and employees

TMA-SA Board Members 2014: (Back row standing): Johan Engelbrecht, Nelson Miya, Gareth Cremen, Wanya du Preez, Darryl Fordham and Alex Eliott. (Front row seated): Francis Matabane, Bruce Berry (COO), Rod Plaistowe (board chairperson), Alastair Macduff (CEO), Warren Watkins and Susanne Braatvedt(administrator).

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