It is imperative that we work on improving the integrity of the profession

With almost 20 years experience in the business rescue profession, I have seen much of the growth of the profession as well as the changes that the profession has gone through over the years. For a long time, the profession had an almost anonymous existence. This changed with the South African Airways business rescue which received plenty of media attention.

The SAA rescue was not the only rescue that received media attention. Edgars, CNA and Ster-Kinekor received their fair share of reporting as well.  Some of the media coverage focused on the delays and challenges that these rescues faced and shaped the perception of the industry amongst the public. This has created the reluctance that many BRPs face today.

Some of the challenges that the profession faces was discussed in an article that was recently published on golegal.co.za.

The costs of the business rescue proceedings
The article points out that, unlike liquidation proceedings, in which the liquidator can be taxed subject to the approval of the Master of the High Court, practitioners are not subject to any independent party who can scrutinize the costs involved in such proceedings.

Although practitioner’s fees are provided for in Section 143 of the Companies Act 71 of 2008 (The Act), the costs involved in the proceedings are often unreasonable, especially considering the company’s financial distress.  The article adds that, evidently, there is a clear need for independent scrutiny of the costs associated with the rescue process to ensure that the fees and charges are reasonable and justifiable.

Time frames in a business rescue
The Act envisages that the business rescue process should be speedy. Affected persons cannot be left in a state of flux for an indefinite period. Section 132(3) of the Act, is instructive: “If a company’s business rescue proceedings have not ended within three months…”.

The Go Legal article points out that The Act prescribes time frames within which to convene the first creditors’ meeting and first meeting of employees, publish the business rescue plan and convene a meeting to consider and vote on the business rescue plan. In practice, the 25-day time frame provided for in the Act for the submission of the business rescue plan have become blurred as practitioners tend to request additional time within which to publish the business rescue plans from creditors. Practitioners may often find that financially distressed companies lack proper record-keeping, have disastrous finances, and the management has either resigned or is uncooperative. The time frames prescribed by the Act pose a challenge for a practitioner who needs to acquaint himself with the business, stop the financial bleeding, obtain all the information, consult with stakeholders and secure post commencement finance before being able to determine whether there are reasonable prospects of rescuing the company.

There are certain business rescue proceedings that appear to limp along with no end in sight, for example, Shiva Uranium – which was placed under business rescue in 2018. Notwithstanding the aforesaid, the practitioners have still not published a business rescue plan and blame it on the never-ending litigation which leaves affected persons with no alternatives to recover their funds.

The article adds that, whilst the legislature expected the business rescue process to be speedy, the practicalities are that it is a time consuming and costly process. This does lead one to question whether in fact business rescue is a better remedy than liquidation.

Redundancies and the business rescue process
The article points out that, in terms of section 136(1)(a) of the Act, during business rescue, employees who are employed before the commencement of business rescue proceedings, continue to be employed on the same terms and conditions. This is however subject to:

• changes occurring in the ordinary course of attrition; or
• the employees and the company reaching agreement on different terms in compliance with the relevant labour laws.

Section136(1)(b) of the Act goes further to provide that any retrenchments in terms of any business rescue plan, must be conducted in terms of section 189 or 189A of the Labour Relations Act 66 of 1995 (“LRA”), and other applicable labour laws.

The article adds that, based on a recent Labour Appeal Court (LAC) judgment, South African Airways (SOC) Limited (In business rescue) and Others v National Union of Metalworkers of South Africa obo Members and Others, there is now a moratorium on retrenchments when business rescue proceedings have commenced and before the business rescue plan has been drafted. The LAC decision has created challenges for Practitioners going forward insofar as the timing of the business rescue plan is concerned. There is furthermore uncertainty as to whether the business rescue plan can simply be a draft or whether it needs to be adopted by creditors. If the business rescue plan is to be adopted, there is an extended period that needs to lapse before any consultations with affected employees can commence.

Importantly and in addition to the above, section 189 of the LRA requires an employer to issue the section 189(3) notices when it contemplates dismissal. The LC and LAC decision now places an employer in business rescue in contravention of this as the employer now has to wait for the business rescue plan to be presented. That said, the LC held that “the contemplation of dismissal” can only arise once it is provided for in the business rescue plan. This remains a contradiction with the prevailing labour legislation.

The article points out that, considering the LAC judgment, practitioners need to be more diligent in finalising the business rescue plan for consideration. Whilst there are many advantages with the business rescue process, the practicalities in the implementation process have come to fore in that what was intended to be a speedy process may exceed two to three years. With that said, the costs of the practitioners and his advisors are, in certain matters, excessive and unreasonable. This acts as a barrier to smaller companies resolving to be placed under business rescue and creditors effectively getting a small dividend. A further consideration is that a practitioner has no master to report to and who oversees the process. There is no regulatory body whose sole focus is on ensuring that licensed practitioners are competent. These challenges in the business rescue process need to be investigated and steps taken to remedy them thereby ensuring the success and continuation of business rescue as a viable option for distressed companies.

How do we address this?
It is important that we try to change the perception of the profession, especially among future clients.

A lot of work needs to be put into the development of the legislative framework that governs the profession. There are key examples of why this needs to occur in this article as well as the article that we did on Post Commencement Financing.

There needs to be a strict adherence into the qualifications and accreditation of BRPs. The Companies and Intellectual Properties Commission (CIPC) has done a lot of good work when it comes to this and will continue to work hard on this in the future.

Finally, there needs to be a focus on the ethics and integrity of the profession. As part of a BRPs training and movement from Junior Business Rescue Practitioner to Experienced Business Rescue Practitioner to Senior Business Rescue Practitioner, there needs to be an ethics course that all BRPs should be compelled to complete. As part of their Continuous Professional Development, BRPs should be compelled to take a refresher course in ethics and be retested on professional ethics every two or three year cycle. 

It is imperative that we work on improving the integrity of the profession.

Phahlani Mkhombo is the MD of Genesis Corporate Solutions and is a Senior Business Rescue Practitioner