Business Rescue was introduced to South Africa in 2009 (following international successful trends) as a form of relief for businesses who found themselves financially under stress. Rather than following devastating liquidation processes, business rescue is available to those businesses that show the potential to trade through the tough times. Unfortunately, the process has developed a poor reputation in South Africa as a handful of high-profile cases have proved expensive and unsuccessful, but if one digs deeper, business rescue can be an achievable solution to save a business.
Some might argue that the Companies and Intellectual Property Commission (CIPC) records paint a bleak picture for the case supporting the business rescue process, but many practitioners claim that since its inception the process has been refined as the knowledge pool has developed.
CIPC provides that of the 3298 business rescue proceedings between May 2011 and June 2019, a mere 571 have been successful – that’s 17.3%. However, the stats don’t seem to do the process any justice, as a closer look reveals that from the 3298, 274 were declared a nullity, 22 were set aside and 1275 are still in business rescue (see figure below). This, if recalculated, gives the business rescue process a success rate of 33%.
Business Rescue proceedings status May 2011 to June 2019
|Total Business Rescue
|Still in business rescue
According to many practitioners much of the success or failure of a business rescue is dependent on timing. Many businesses are said to have left the business rescue process as a final option, and then it’s often too late. New trends indicate, as business rescue is becoming more recognised as an option, to save a business, directors and business owners are now considering their options a lot earlier in the day. “Business rescue is receiving early favour over the destructive liquidation process,” says PJ Veldhuizen, managing director of attorney firm Gillan and Veldhuizen who specialise in business rescue. “Liquidation is ruthless and expensive and businesses are appreciating that a successful business rescue benefits creditors, employees and shareholders.”
Veldhuizen adds that “Business rescue in South Africa has seen a positive transformation in the last few years, thanks to some prominent cases.” According to Veldhuizen, the system has remedied itself as the industry and practitioners have adapted the formula. “Expectations were initially unrealistic with regard to matters such as the duration of the business rescue process and skills required of the practitioner. Business rescue is a very different process to liquidation and since its introduction, the system has refined proceedings and filtered out unsuitable and opportunistic business rescue practitioners.”
The current remuneration of a business rescue practitioner, as set out in section 143 of the Act, is between R1250 and R2000 per hour (maxed at R20 000 per day); however, a practitioner is entitled to be reimbursed for any cost that may be incurred in facilitating the business rescue plan (i.e. skills, a team of experts, accountants, attorneys, etc.). Veldhuizen warns that one can find oneself in a “how long is a piece of string scenario”, and suggests that business rescue fees should be agreed upon upfront. “Business rescue costs can accumulate at a rapid rate, it’s therefore advisable to agree upfront on a fee and include a threshold. Some practitioners include a success percentage fee, and the calculation of this should also be agreed on upfront,” he advises.
Many business owners and directors of boards will be seriously considering and calculating whether their businesses are going to make it through the next few months. Although the bankruptcy writing may be on the wall for many, Veldhuizen says that business rescue is underrated and overlooked in South Africa.