With the recent news that Comair, Edcon and even Phumelela Gaming & Leisure have filed for business rescue, it’s likely that South Africa will see a wave of companies following suit in the next few months, particularly those companies that have had other difficulties before the COVID-19 pandemic hit. For a company at the brink in recent years/months, the COVID-19 pandemic lockdown is likely to push it over the edge, leading to an increase in business rescue cases.
However, with success rates being contentious in South Africa, business rescue doesn’t guarantee that these companies will be saved. Instead, it is only effective in companies that make the right choices early on.
This is according to Justine Hoppe, a director of Mazars Recovery and Restructuring, who says that South Africa will see an unprecedented surge in new business rescue cases over the next six months. “There are thousands of South African businesses that were already operating under severe financial strain as a result of the weak economic landscape of the last few years. For many of these companies, the national lockdown and the coming economic challenges are likely to be the final blow.”
Hoppe says that it is up to business owners to evaluate their positions and to decide whether to file for business rescue before it is too late. “It is crucial to initiate proceedings before the company is projected to come to a financial standstill, and there is a duty on directors to constantly evaluate this position. All too often, business owners hold on for too long and only apply for business rescue after the point of no return has been reached. Fortunately, if done correctly, we believe that the process is going to be instrumental in future-proofing many of South Africa’s at-risk businesses, and help them to adapt to the new dynamic that the pandemic is bringing to global markets,” Hoppe says.
“The only way forward for many organisations is going to be liquidation, but business rescue practitioners may play a valuable role in keeping the number of liquidations as low as possible. However, it’s often difficult to get stakeholders to partner with the practitioner. Working to forge a collective will to find a turnaround strategy for any distressed company is imperative to a successful outcome. Added to this is that the Companies Act allows for rescue in the continuation of the business as well as the wind down and shutting of the business that still delivers more the creditors than a liquidation.”
Research published by Business for South Africa (B4SA), estimates that between one million and four million informal and formal sector jobs are currently at risk.