To the rescue
More financially distressed companies that have gone into business rescue since 2011 have been saved than have failed, according to figures from the Companies & Intellectual Property Commission (CIPC). This disproves the general perception that business rescue has had a low success rate since the practice was introduced in SA in May 2011 under the Companies Act.
Of the 1,122 business rescue proceedings completed by the end of 2016, 48% were successful compared with 38% that failed. The remaining 14% of cases were terminated before they actually entered the process.
Just over 1,100 companies are currently in the business rescue process, CIPC figures show.
Neill Hobbs, a senior business rescue practitioner at Cape Townbased Hobbs Sinclair Chartered Accountants, says the fact that the turnaround process takes much longer than initially expected is probably a key reason why people mistakenly believe that business rescue hasn’t worked in SA.
“Initially, the view was that the process should be completed within three months. The reality is that it takes 12 months on average to return a company to solvency.”
More than half of the 35 business rescue cases that Hobbs Sinclair has taken on since 2011 have succeeded. “Nearly 2,000 jobs have been saved in these cases,” he adds.
Hobbs says the business rescue success rate has risen steadily over the past six years as more companies realise that it should be a first and not a last resort. “People are starting to understand that the earlier you apply for business rescue the better your chances of success. There’s no point in waiting until you are grossly overindebted.”
To date, construction companies probably represent the largest chunk of companies that have gone into business rescue, says Hobbs. He believes retail is likely to be the next sector to experience widespread financial distress amid pressure on consumer spending. However, Hobbs warns that it will become a lot more difficult to save SA retailers — clothing companies in particular — given increased competition from overseas fashion brands that have entered SA in recent years, as well as the advent of online shopping.
SA retailers with outdated business models, such as Stuttafords, will find it particularly difficult to survive, says Hobbs.
“The entire SA retail landscape has changed, which is placing retailers increasingly under threat.”