Sink or Swim – Business Rescue – The Art of Treading Water?

The new Companies Act No. 71 of 2008 (new Companies Act) provides an opportunity for companies that are trading under financially distressed circumstances, to apply for the temporary supervision of the company by a trained Business Rescue Practitioner, who would take over the management of the company’s affairs, business and property for an interim period.

If a company is financially distressed:
• it appears reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable in the immediately ensuing six months; or
• it appears reasonably likely that the company will become insolvent within the immediately ensuing six months.

Business rescue or liquidation

In the past, companies in financial distress in South Africa have had no alternative but to launch proceedings for liquidation. Unfortunately, once liquidated, a company’s assets are generally sold at fire sale values. From time to time, businesses are sold as going concerns by liquidators, but these instances are few and far between. Thus liquidation proceedings have historically resulted in very small or marginal dividends for creditors.

Under the new legislative framework, directors have a very difficult choice to make – to file for business rescue or for liquidation. If the board of a company has reasonable grounds to believe that the company is financially distressed, but the board decides not to adopt a resolution for rescue, a written notice must be delivered to all creditors setting out the basis upon which the company is financially distressed and why it is not proceeding with an application for business rescue.

This is a section 129(7) notice, the purpose of which is to warn all creditors that if they deal with a company that is financially distressed, they do so at their own risk, particularly when goods are supplied on credit.

The introduction of business rescue brings South Africa into line with overseas jurisdictions, such as the existing Chapter 11 judicial processes in the United States and the Administration processes in both Australia and the United Kingdom.

The aim

The aim is to provide a temporary moratorium on the rights of all creditors to proceed against the company during the business rescue period. Ultimately, the Business Rescue Practitioner (who has to be licensed by the Commission of Intellectual Property and Companies (CIPC)) is tasked with the development and implementation, if approved by creditors and other stakeholders, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis.

If this cannot be achieved, the aim would be to provide a plan which would result in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.

The main aim for efficient rescue and recovery of financially distressed companies is one which seeks to achieve the objective of balancing the rights and interests of all relevant stakeholders, particularly those of the creditors, employees, shareholders and the company itself.

Business rescue filings

Business Rescue has been available to financially distressed companies since 1 May 2011. Since the date of implementation of the new provisions, there have already been a significant number of filings. According to the CIPC, there have been 280 notices to commence Business Rescue since 1 May 2011. The procedure is open to all companies, namely private companies, public companies and close corporations. So far, private companies have been the majority in respect of rescue filings.

The CIPC have indicated that the number of companies that have taken the decision, either through resolution or through a court application, to apply for the commencement of rescue proceedings remains an ongoing process and one which demonstrates that rescue could possibly offer an alternative to liquidation. Recent liquidation statistics (as at December 2011), indicate that the number of liquidations for 2011, fell by 10.8% year on year and when compared to the same period in 2010.

According to the CIPC, the sectors which have filed for rescue are mining, property and real estate, quarrying, electricity, gas and water, transport, storage and communication.

From an analysis of the above, it is clear that the property and real estate industry have been at the forefront in respect of rescue filings. This is as a direct result of a decrease in property prices and general depression in the real estate market. Many of the companies that have opted for business rescue in the real estate industry have been limited to groups of investment schemes that were administered as property syndications which ultimately ended up in a financially distressed situation. There have also been rescue filings in the services sector which includes transport and logistics, tourism, hotel services and general services.

In the manufacturing industry various companies and close corporations have also filed for rescue and which are evenly spread out amongst the various sectors.


It has certainly become evident that rescue is an alternative option for companies that are facing insolvency. Rather than being placed in liquidation, business rescue does provide an alternative scheme for creditors to be settled within a reasonable period and in terms of the rescue plan.

Often, the dividend offered in a business rescue scenario is far greater than that which would be received in liquidation. Rather than sink, a company often needs to have the alternative of a moratorium period within which to restructure burdensome debt which threatens the solvency of the company. “Treading water” for the period of the rescue proceedings would often allow a company to be saved.

Just as the National Credit Act assisted in keeping individuals from being sequestrated, rescue proceedings should ultimately reduce the number of liquidations in the South African economy.

It has become evident that many businesses are filing for business rescue purely as a delaying tactic and in order to avoid having to make payment to creditors. It allows a temporary moratorium on debt repayment. Obviously the courts are dealing with those applications which are deemed to be an abuse of the process and which do not have the true objectives envisaged by the rescue procedure.

What is critical is the ability of the Business Rescue Practitioner to devise a coherent plan that creditors can properly understand and vote upon to finality.

Already a body of case law is being developed by our High Courts throughout South Africa in respect of providing rulings and guidelines to enable all stakeholders to understand the mechanics of the new provisions and the manner in which business rescue should operate.

One of the ultimate objectives is to save jobs and to reduce unemployment. Although, to date only six business rescue plans have been accepted by creditors, we remain in the system’s infancy and over time, particularly in 2012, should the need arise, rescue might very well become the norm rather than the resultant negative impact of liquidation.

The 6 Conditions of Business: How To Rise To The Top

When your friend asks you: “How’s business?” What do you answer? Usually the standard replies to this are: “Doing great!” or “It’s ok, but could be better,” or a bunch of other standard replies. That’s all well and good for the casual remark, but as a business owner it is ESSENTIAL to know EXACTLY how your business is doing, where it’s heading, and how to take control over its future. Many businesses choose to “wing it” or keep doing what they feel is right, no matter what the results may be. Albert Einstein stated that the definition of insanity is the act of doing the same thing again and again, and expecting a different result.

In order for your business to stay alive and thrive, it is essential for that you know what your present condition is, and how to either improve upon it or strengthen it. To do this, you need a plan, and a formula that works every time. It must be simple to implement, and easy to understand and recognize. In other words, you need to CHART YOUR BUSINESS CONDITIONS.

Charting means to place on a graph in a measurable way, what your business considers to be its essential parts that make up a successful and healthy business. To keep it simple and universal, those basic parts are:

Number of Customers
Number of Sales

This needs to be charted on a graph, on a MONTHLY basis. Set your graph so that the vertical line lists the item being charted (ie: Revenue) and the bottom horizontal line is for each day of the month starting from 1 to 31. After the end of each day, place a dot on the graph that shows the amount of revenue taken in for that day. Then as you add stats, each day, simply connect the dots to form the graph.

Now that we have the mechanics taken care of, it’s time to read and understand what your graph is telling you, and how to effectively act upon that information you have.


Any business when it first starts up or opens a new store or new branch or begins to track itself, is in a state of NON EXISTENCE. This means that no one knows you or about you. The formula to move out of non existence is to PROMOTE, PROMOTE, PROMOTE. Get your name and services out there, and have people know you exist. Start driving business and traffic into your business. Write down your goals and implement them.

On the graph, non existence is depicted simply as that: NO STATS. So start putting up stats and get out of non existence fast!

On the graph, the condition of Danger is depicted by a steep drop in the stats. This means something is terribly wrong. This could mean that someone is not doing their job or has abandoned their job. This could mean there is a big black hole somewhere in your business that is devouring your stat and causing it to crash. The solution is to step in and TAKE OVER whatever is causing the DANGER condition and handle it PERSONALLY. If the cause is a staff member, then either retrain them or replace them. However, until the DANGER condition is removed, you need to be the one who is actively correcting it.

Emergency is shown by a slight dip in the stats. It is not a plummeting collapse that signifies Danger, but it’s still a drop in the stat, which is a warning that something is out. Fixing an emergency is quick and easy. Whatever is being done that is causing the stat to drop needs to be changed. The cure is simple. Someone or something went slightly off target or goal, and is moving in a slightly different direction than the way it should be. Find the detour and put it back on track.

The stat is very slightly up. Things are moving smooth and well, and everyone is feeling comfortable. This is the first step to really launching your business into the next level. When the stat shows Normal, continue doing what you are doing, and strengthen the actions so that you build up your momentum. A successful action will always be a successful action, so get it firmly put into place and into your operating policy.

The stat has taken a big swing upwards (at least 30 degrees or more) In Affluence there are two essential rules to follow. The first rule is to PAY OFF ALL YOUR DEBTS. Get clean with nothing holding you back. Secondly drive home and hard all the successful actions that you are doing that brought you to Affluence. Make sure your entire staff is aware of this excellent condition and that they also continue to put into action all the things that created this condition.


You’ve arrived! Your stats are flying high and are at least at a 70 degree angle. Power is when you have stayed in Affluence on a consistent basis and it almost (mind you I said “almost”) feels like your business is running on its own. It isn’t, but it can feel that way, because of the Power momentum. Staying in Power means to WRITE UP YOUR SUCCESSFUL POLICIES so that you always know what it is that put you into Power. If that stat begins to drop, you have actual references to go to, to fix it.

Once you start graphing your business on a day to day basis, be sure to then graph it on a monthly basis so that you can see how your year is progressing. By graphing you get a real and a very vivid picture of EXACTLY where your business is, and how to measure your production.

Make sure you do not hide these graphs. Make them very visible to your entire staff. This way everyone feels they are a part of the team and a part of growth of the business.

By knowing exactly how your business stands and how it is doing, you can then take proactive measures to continuously improve and grow your business to the next level.

See you at the top!

The Role of Politics in Small and Medium Businesses

Coming from a large corporate background, I have been treated to master classes in political behaviour simply by observing colleagues and superiors engaged in their favourite pastime. Surprisingly, I have also seen the same kind of behaviours in lots of smaller businesses. Many refer to it as playing the game. Is there value in political manoeuvring or is it simply dysfunctional behaviour that has no place in business?

I have vivid memories of one of my bosses telling me that I needed to cease having lunch in the work restaurant with friends if I wanted to enjoy career progression. Instead, I was told who I ought to have lunch with from Monday through Thursday and to reserve lunch with friends for Fridays. I was shocked at the time to learn that career progression came from schmoozing with the “right people” and not from hard work and measurable performance. Was I simply naïve or was this a common reality? Unfortunately, it has proved that my boss was offering sound advice. But does it really have to be that way, and particularly in smaller and more nimble businesses?

I have always intensely disliked the idea that employees should have to endure the indignity of massaging egos in order to hold onto their jobs or gain well deserved promotions. I abhor the idea that honesty has no place in business and that you should tell your superiors what they want to hear. Perhaps this is the reason, more than any other, why I have chosen not to stay in the corporate sector. However, dysfunctional behaviour such as politicking is not confined to large corporate entities. It is pervasive and all too common in smaller organisations as well.

Politics in business has the tendency to create “Groupthink”. Everyone espouses the same views in order to fit in. Being an independent thinker is often frowned upon. Bright people fear to put their heads above the parapet. Well guess what? The meltdown of the financial services sector in recent years has resulted directly from this herding tendency. So how do you banish this turgid behaviour from your business? You do so by exhibiting leadership in your business. The CEO must surround himself with executives and board members that are not afraid to challenge the status quo. Diverse opinion and open discussion must be encouraged. Kissing the behinds of superiors should result in negative consequences for the kisser, metaphorically speaking of course. Political appointees simply perpetuate the problem of groupthink in a business. Replace them with people who espouse ethical behaviour and openness. Create a policy for corporate governance that makes it clear to all how your business adheres to ethical business standards.

Honesty and openness in business is what creates value. Promotion should be on the basis of real contribution and merit. If senior executives or board members display political behaviours, then this ought to have negative consequences for them. It is all about making it clear to all employees that there will be a policy of zero tolerance. Ensure that your performance measurement system and reward structure result in the right behaviours. Encourage diverse opinion and open discussion. You don’t want a democracy but you certainly need a meritocracy.

The surprising thing that happens when you decide to transform your business from political favouring and towards meritocracy is that the underlying culture of the business changes for the better. The work ethic changes radically. There is more contribution from those that preferred to stay in the background in the past. Staff morale goes up and so does productivity and profitability. It takes courage to move away from politics and to challenge the status quo but the benefits can be enormous. In my view, politics has absolutely no role in small and medium businesses.