By Dr Kaizer M. Nyatsumba (MBA, PhD), Business Rescue Practitioner, Turnaround Strategy Expert and Chartered Director (SA)
So, you find yourself with a financially distressed company, where you have no choice but to implement business rescue to avoid liquidation? Choose wisely when it comes to the Business Rescue Practitioner (BRP) that you appoint.
Understanding Business Rescue
Business rescue is statutorily mandated for all companies which are financially distressed, if their Boards are of the view that there is a reasonable prospect to rescue them, as defined in the Companies Act 71 of 2008 (hereafter called the Act). The Board of Directors of such a company is required by law to resolve voluntarily to place the company in business rescue the moment it realises that the company is financially distressed. Should a Board fail to resolve to place such a company in business rescue, then it is required, in terms of Section 129(7), to “deliver a hand-written notice to each affected person [including its creditors and shareholders],” explaining “its reasons for not adopting a resolution contemplated in this section.”
Continuing to trade at a time when a company is financially distressed, but without resolving to place that company in business rescue, makes that company’s Board of Directors guilty of reckless trading and exposes its Directors, jointly and severally, to the considerable legal liabilities listed in Sections 77(2) and 77(3) of the Act.
It is important to bear in mind that when the Board of a financially distressed company does not initiate business rescue proceedings, Section 131(1) of the Act grants any “affected person” the right to apply to a court of law for the company to be placed in business rescue. Affected persons could be a creditor, a trade union or an employee who is not affiliated to a union.
As explained in Section 128(f) of the Act, a company is financially distressed if i) “it appears to be reasonably unlikely that the company will pay all its debts as they fall due and payable within the immediately ensuing six months, or ii) it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months”.
While it is vitally important, business rescue has serious legal implications for all of a company’s stakeholders. During business rescue, the Business Rescue Practitioner (BRP) – who is an officer of the court – has full control of the company’s affairs and is charged with the responsibility to investigate its affairs and to take the necessary corrective actions. Although they continue to remain in office, members of the Board of Directors of a company which is in business rescue are “subject to the authority of the [business rescue] practitioner” and are required to “attend to the requests of the practitioner at all times.” The BRP may delegate responsibilities to Board members or existing members of the Senior Management Team, and has the authority to dismiss members of the management team and to make new appointments in their place.
During business rescue, there is a general moratorium on legal proceedings against the company and its creditors may not take any “enforcement action” against it. Therefore, business rescue offers a financially distressed company a valuable breathing space to get itself re-organised.
Who may be Business Rescue Practitioners?
BRPs are drawn from the ranks of legal practitioners, accounting professionals and management practitioners. According to Section 138(1) of the Act, only someone who meets the following criteria may be appointed as a BRP. S/he should be a person who:
- “[is] a member in good standing of a profession subject to regulation by a regulatory authority prescribed by the Minister in terms of subsection 2;
- “is not subject to an order of probation in terms of section 162(7);
- “would not be disqualified from acting as the director of the company in terms of section 69(8).”
BRPs must be members of an association which, among other things, “functions predominantly to promote sound principles of business turnaround or rescue.”
By default, the vast majority of BRPs in South Africa come from the ranks of lawyers and accountants. It is because the business rescue regime is a creature of statute that lawyers have benefitted disproportionately from it, and because financial institutions have generally been more comfortable with them that accountants have been among the favoured BRPs. Regrettably, less priority has been given to the critical importance of management experience, and that has been to the detriment of the business rescue process.
In their academic paper headlined “Critical variables of venture turnarounds: a liabilities approach,” Professor Marius Pretorius of the University of Pretoria and Dr Gert Holtzhauzen of Strategic Turnaround Solutions (Pty) Ltd argue that “financial skills are but a small segment of the knowledge and skills required for successful turnaround.” They add that a turnaround manager’s skills depend heavily “on leadership and strategic management abilities, and less on accounting and legal skills.”
We concur fully with Professor Pretorius and Dr Holtzhauzen.
Choose a BRP with Practical Business Experience
KMN Consulting Managing Director Dr Kaizer Nyatsumba has had more than 25 years of leadership experience in different sectors of the economy here and abroad. He has held such positions as Associate Editor (The Independent in London, UK), Editor (The Independent on Saturday and Daily News), Vice-President of Corporate Marketing (Anglo American), Public Affairs and Communications Director (Coca-Cola South Africa), General Manager: Marketing, Corporate Affairs and BEE (Sasol Ltd), Vice-President: Corporate Affairs and Shared Services (PetroSA) and Chief Executive Officer (Steel and Engineering Industries Federation of Southern Africa).
Not only is Dr Nyatsumba a vastly experienced business executive, but he also holds an impressive array of qualifications. They include the following:
- PhD in Business Management (Turnaround Strategy) from the University of Johannesburg,
- MBA (General Management) from the University of Hull (UK),
- BA in English from the USA’s oldest Catholic university, Georgetown University,
- Post-Graduate Certificate in Economics from the University of the Witwatersrand),
- Senior Leadership Development Programme Diploma from Harvard University in the USA, and
- Advanced Development Programme from the University of Pretoria’s Gordon Institute of Business Science.
Not only does Dr Nyatsumba know the Companies Act 71 of 2008, as a Chartered Director (SA), but he has also attended the TMA-SA-accredited Certified Rescue Analyst Programme at the University of Pretoria and is very familiar with Chapter 6 of the Act, which regulates business rescue.
Dr Nyatsumba is a member of both the Institute of Directors in South Africa (IoDSA) and the South African chapter of the Turnaround Management Association (TMA-SA). He is a vastly experienced business management practitioner, a business turnaround expert and an experienced Board Member.
Contact KMN Consulting
Choose Dr Nyatsumba as your company’s Business Rescue Practitioner. Contact KMN Consulting now. Send an e-mail to Kaizer@kmnconsulting.co.za or call +27-10-156-2906 now.
For more information, see www.kmnconsulting.co.za.