Director: ReVive Advisory & Turnaround
In an article written by Eric Levenstein, Chairperson of the South African Restructuring and Insolvency Practitioners Association (SARIPA), he distils some of the key themes around business rescue that emerged at the SARIPA conference held in November 2023.
To summarise, the aim of the business rescue process is to secure outcomes for creditors that are better than a liquidation. This is usually through a trade sale to an existing player or a reconfigured investor group, generally allowing the debt holders a second chance at recovery of their capital.
However, the use of BR to reconfigure a Company with a debt forgiveness or to renegotiate onerous contracts such as leases is still not a first choice or even often an outcome that does not require a trade sale. While Levenstein’s article accurately reports what is probably the current state of the use of business rescue, it does not look beyond these artefacts and ask why it is not used other than as an outcome better than liquidation.
Creating a framework
Perhaps we need to actively work towards a clear framework for the use of business rescue. This could be a list of challenges best dealt with using business rescue. In mining law, a business rescue does not impact the mining rights and licences; however, in liquidation, all of the rights come to an end. Business rescue is an excellent tool in these circumstances.
In the event of onerous leases in retailers, the moratorium provisions are helpful. This was used in the Ster Kinekor business rescue, which has been successfully concluded.
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Therefore, developing a framework that is suitable for business rescue based on the individual exigencies of the type of business does seem possible. It is also true that the fact that certain types of businesses are unsuitable for business rescue. Logistics companies breaching their vehicle leases and losing revenue contracts simply cannot find refinancing; the revenue moves to another provider in industries with particularly low barriers to entry.
Good businesses in bad industries will be consolidators of competitors. Contrast the sugar producers in the Mpumulanga lowveld with those in Natal in the Tongaat stable. By contrast, bad competitors in good industries will be most suitable candidates provided good management practices are put in place. The spectacular turnaround of the Document Warehouse some years ago is a case in point.
Skills and experience are needed
Managing through a business rescue requires skilled and experienced practitioners. An under performing business in a viable economic sector requires all stakeholders to align their interests to save the business and the appointment of a good turnaround executive team to take the business forward during the implementation of the turnaround strategy.
To thrive in the environment that Levenstein describes, a radical re-invention of the approach towards business rescue and the service offering provided by BRPs is needed. BRPs must build on their expertise in managing deeply distressed companies, cash flow management, funding, and treasury solutions. Cost reduction and growing the future core business are also key. Corporate finance, consolidations, and mergers will play a major role in the future landscape of distressed companies in South Africa. Finally, disposals of underperforming assets or managed wind-downs may become more common.
ReVive’s expertise in general strategy and operational management gives us an edge in turnaround and is based on deep expertise over decades of commercial experience. Combined with our financial management skills, we can offer a comprehensive turnaround process with active day-to-day management until the organisation is stabilised.
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Looking at Levenstein’s comments objectively, one can identify significant opportunities and challenges:
• There is a definite market need for a business that has a track record in the distressed market, which are providing support to companies that are battling while the industry around them is growing and healthy;
• Where both the industry and the company are distressed, the options are a sale of an industry consolidator, a managed exit or wind down. The option of an outcome better than liquidation;
• The offering provided to distressed companies in Levenstein’s environment needs to be personal when owners and directors want it, but must provide scale when it is needed. This speaks to how ReVive structures its business in this volatile market;
• The route to market remains an advisory, experienced-based approach. Building referral networks that work to the benefit of the whole value chain, especially the client;
• Considering the population of businesses needing strategic and financial advice, business rescue is a small and shrinking market outside of outcomes better than immediate liquidation; and
• The advisory market for companies in good markets that are battling with growth challenges and those underperforming their peers is significantly larger and more viable and as the economy moves into a consolidation and recovery phase, it presents the best opportunity for the team. This has grown significantly with high inflation, bad growth in the economy and various failures in the provision of infrastructure to businesses. Both at the national and local municipal level.
Levenstein’s assessment of the profession and the landscape that BRPs currently operate in is accurate and describes some of the challenges and frustrations that are all to common to professionals who want to achieve a better outcome for creditors.
ReVive is looking forward to the Deloitte’s survey findings which are typically released in April. Hopefully they will provide further insights as to then a Board should consider business rescue as a viable tool to assist in the implementation of a turnaround plan.
