Business Rescue process“The business rescue process of South African Airways, which, after almost eight months and billions of rand, is still not complete, has put the spotlight on whether business rescue is indeed a viable option provided by the Companies Act.” says Carin Smith of Fin24.

The success rate of business rescue in South Africa is approximately 10%, according to George Nell, a senior business rescue practitioner (“BRP”) at Corporate Business Rescue.  He adds that if, however, one disregards the real “bad apples” – companies which were already in a very dire state – the success rate of business rescue goes up to approximately 35%.

Three reasons for low success rate of business rescue

  1. By the time that most businesses go into rescue, the damage is already done.
  2. The costs of business rescue mount quickly and can be prohibitive.  If the company being rescued does not have the funds available, it will end up being liquidated.
  3. BRPs are not always adequately skilled or equipped to understand the unique nature and operations of the business in rescue.

Rogue BRP operators

If a business goes into voluntary business rescue, the board of directors makes the appointment of the rescue practitioner(s).  Often directors will appoint practitioners who they know and can potentially “manipulate”.  Shareholders should hold the directors to account in these cases.

If the business is involuntarily placed into rescue, the creditor bringing the application proposes the practitioner.

Complexities encountered

In the view of Erik Venter, former CEO of Comair, “if the management of a company is not able to achieve business success, what is the likelihood of a “stranger” coming and doing it?  For large companies, you would need someone at the level of an ex-CEO of a company to have the necessary institutional knowledge,”

The recent Labour Appeal Court’s judgment could have a major positive impact, because BRPs may not start retrenchments without first submitting a business rescue proposal.  They will need to prepare their business rescue plans much quicker and much earlier in the process than previously done.