Business rescue works well when you have a strong and competent team behind you.
Business rescue as a discipline is highly complex and is subject to very strict time lines, as outlined in Chapter 6 of the Companies Act, 71 of 2008. Experience has shown that Business Rescue Practitioners (BRPs) that operate as individuals have a hard time complying with legislation and build sustainable practices.
Below, we outline the challenges and complexities a BRP has to consider before venturing out on his own. All graphics and diagrams are from the book Gribnitz, KJ. Appelbaum, RL. (2015), Business Rescue and Compromise Offers, G&A Compass Publishing and Training (Pty) Ltd. This book is the definitive authority on business rescue in South Africa, and together with the extensive case law library curated by G&A Compass, forms the body of knowledge which Sagacity practitioners have exclusive access to.
A Business Rescue Practitioner’s Obligations
A business rescue Practitioner (“Practitioner”), is responsible for 204 of the total 354 obligations, which are part of 923 implied and direct rights of affected parties, to be complied with within 25 days according to Chapter 6 of the Companies Act 71 of 2008.
A business rescue practitioner must manage his own business or practice as well as that of the business which is in business rescue. A practitioner should therefore focus on three major areas in his business being:
Opportunity Management, Risk Management, Compliance Management
Analysis of time utilisation (sole practitioner)
The Practitioner may bill for 100% of his allocated hours. After 25 days, he has to initiate a marketing campaign to obtain new appointments, but he cannot bill for these hours. Only after procuring a second business rescue appointment, which may normally occur around 57 days (two months), can the Practitioner bill a client once again and generate new income.
Effectively, the Practitioner’s marketing hours, spent on procuring additional business rescue appointments, are lost billable opportunities.
Analysis of time utilisation (if a team was employed)
As a sole Practitioner, he spends twelve and half days as unbillable hours and twelve and a half days on sporadic and irregular marketing. That is 25 days of unbilled time in a 60 day cycle. If the Practitioner works with a team he only spends 8 days over two months as unbillable days, and six and a half days, on regular, specific marketing time. Immediately, over the 60 day cycle, the days spent on non-income generating work are minimised and workflow optimised.
The trade-off that the sole operating Practitioner makes is the allocation of his limited resources versus his ultimate action accountability. The combination of these factors creates a scenario where the liability of risk of an appointment must be weighed against the financial benefit.
Cash flow patterns experienced by a sole practitioner
Cash flow patterns experienced by a BRP supported by a team
Turnaround vs restructure proceedings
Neither the strategy, nor a combination thereof can be successfully executed without proper administration and compliance, therefore the need for the professional team which will assist with the:
Unfortunately not all Practitioners have the luxury of time to determine the optimal mix of variables during the approval of a business plan.
Opportunity Management and Core Skills Requirement
Internal Opportunity Management includes:
External Opportunity Management includes:
Compliance Management and Core Skills Requirement
What is required in terms of Compliance management
The Practitioner is confronted with ever-growing pressures as the industry is faced with case law requiring absolute compliance. The increase in scope and scale of complexity in dealing with a business rescue makes for complicated scenarios in the effective execution of your duties as a Practitioner. Reported judgements make the legal, business community and affected parties much more aware of requirements in terms of compliance.
Compliance requirements as specified by law
(Chapter 6 of Companies Act, 71 of 2008)
Risk Management and Core Skills Requirement
Practical risk management includes:
Effective supervision includes:
Risk Management requires that control be taken by the Practitioner over the company in distress. Control consists of insuring the assets of the business in distress to the insurance of the PRACTITIONER in his/her personal liability.
Control also relates to the day-to-day financial control of the company in distress. Most important of all is testing and controlling the integrity of the data collected to be encapsulated into the business plan, with the Practitioner’s signed certificate of verification.
Time allocation by practitioner during business rescue
No PRACTITIONER is afforded the luxury of shortening the process and producing a sub-standard business plan.
The most important facet of the prescriptive legislature is that the Practitioner has all the duties of a director, which means that he has to act in best interests of the Company at all times and act according to the principles of the King Code on corporate governance. Therefore, it is prudent for the Practitioner to understand the various requirements of the Act and the Code.
CEO’s are groomed for years to become visionary leaders of companies. Practitioners are allowed 25 days to fast-track the company back to health, stabilise the financial situation and re-establish the enterprise as an economically sound and viable enterprise.