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Picture: 123RF/OLIVIER LE MOAL
Picture: 123RF/OLIVIER LE MOAL

SA companies continue to face challenges in surviving economic constraints and turmoil in the market place. 

Looking at recent fallout, we have seen filings for business rescue by Tongaat Hulett, the SA Post Office and electronics group Ellies. Liberty Coal purchased Optimum Coal out of business rescue in March. Nampak is going through an informal restructuring process and appointed a chief restructuring officer to manage its turnaround process. Liquidations remain on the increase, with the latest victim being Habib Overseas Bank. 

With increasing economic pressure (both in SA and globally), we continue to see companies in SA being left with little choice but to consider either a business rescue or an insolvency process.

The cost of trading in 2024, caused by the pressure of load-shedding, is affecting companies in just about every sector of the economy. 

Stats SA reported that 138 companies were placed into liquidation in SA in March 2024, with financing, insurance, real estate and business services leading the charge (at 46 companies) followed by trade, catering and accommodation (33), manufacturing (5) and construction (3). 

It has further been reported that SA’s state-owned enterprises remain financially distressed, with Eskom posting annual losses of more than R20bn in the past seven years, followed by SAA, Prasa, PetroSA, Denel and the SABC, all having consistently performed in a loss-making position. Clearly, financial distress remains agnostic and cuts across all sectors of the economy. 

With all of this turmoil raging around our economy, SA companies are fortunately able to turn to a pool of skilled restructuring and business rescue practitioners to assist in alleviating financial distress and thereby promoting the rescue of struggling companies. 

These practitioners have the tools provided by the Companies Act of 2008 as well as the Insolvency Act, 1936, at their disposal. 

Restructuring tools are diverse and focus on bringing rampant debt under control, decreasing costs and overheads, alleviating pressure from creditors caused by weak cash flow and reorganising the manner in which distressed companies trade.

Insolvency professionals must recognise that to add real value to the restructuring process they will need to become aware of and bring themselves up to speed in respect of all restructuring disciplines.

This might also include an urgent requirement to reconfigure management, the board of directors and employees. The ability to renegotiate onerous (and prejudicial) contracts also remains an option, especially in a (formal) rescue scenario. These restructuring tools remain varied, and adoption and implementation will depend on the company, the nature (cause) of the distress and the attitude and level of support of stakeholders, especially that of the financial institutions exposed to the distressed company. 

Insolvency professionals need to adopt a holistic approach to dealing with the issues and root causes for the company’s position of distress and decide on the most effective tool to be adopted in the peculiar circumstances facing the distressed company. These may include an informal restructuring (solvent restructuring), a business rescue process or an insolvency/liquidation process.

Insolvency professionals must recognise that to add real value to the restructuring process they will need to become aware of and bring themselves up to speed in respect of all restructuring disciplines (as mentioned above) and to become effective “corporate doctors”. 

One cannot practise in this area of speciality without being in touch with and understanding all of the mechanics and tools of restructuring companies in distress. 

This includes the informal restructuring process (the solvent restructuring), the makeup and mechanism of the section 155 compromise procedure, all of the business rescue mechanisms and workings of Chapter 6 of the Companies Act, and the intricacies and machinery of the insolvency process. For example, an understanding of the comparison between a business rescue dividend as opposed to a liquidation dividend is an essential factor in being able to decide which way the restructuring process should unfold. 

Having a multifaceted approach to the tools available and being able to call on these skills at any time (depending on the situation faced) can only improve better outcomes for companies in financial distress. 

Adopting a one-dimensional approach does not provide value to the board, the company, the creditors or the employees of the distressed entity. In corporate SA, it is vitally important that stakeholders can recognise a multiple skill set on the part of insolvency practitioners and where the practitioner is skilled in all disciplines to be able to successfully restructure, rescue or wind up the company for the benefit of all affected people.

• Levenstein is head of the Insolvency and Business Rescue Practice Group at Werksmans Attorneys. 

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