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Speaker 1: Learning questions, insightful answers choice.

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Speaker 2: So on our Listener's Choice feature today we are unpecking

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Speaker 2: the business rescue process. What goes into this intricate process.

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Speaker 2: One of our listeners has chosen chosen this topic for today,

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Speaker 2: asking that we look at what goes into the business

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Speaker 2: rescue process. And of course, in this country, this term

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Speaker 2: is quite a common one we often hear right, it's

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Speaker 2: become widely recognized, especially because there are a number of

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Speaker 2: companies that have entered this process, the number of state

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Speaker 2: owned entities as well that have entered business rescue, and

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Speaker 2: the bid is always to try and avoid collapse. But

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Speaker 2: what does this business rescue actually mean? How does the

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Speaker 2: process work? And who's ultimately protected when an organization is

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Speaker 2: declared financially distressed? What are the warning signs that a company,

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Speaker 2: oh even if ston't aid entity, is heading towards business rescue?

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Speaker 2: And who even makes the final decision to place it

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Speaker 2: under business rescue? These are some of the questions our

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Speaker 2: listeners have. So we've invited someone this morning who is

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Speaker 2: going to guide us through this conversation to understand what

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Speaker 2: goes into a business risky process? What does it entail?

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Speaker 2: But if you've got your questions yourself. Please feel free

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Speaker 2: to give us a call on OH one one eight

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Speaker 2: eight three oh seven O two. You can send WhatsApps

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Speaker 2: as well on a seven to seven O two one

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Speaker 2: seven oh two. Kyleeen Wars is an associate director at Video.

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Speaker 2: Who's gonna Who's gonna guide us through this conversation? Kyleeen Weiers,

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Speaker 2: thank you so much for making time for us. Kyleen

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Speaker 2: good morning.

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Speaker 3: Oh Clement, good morning. Thank you very much for having me.

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Speaker 2: Yeah, so let's start just in the beginning. What by

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Speaker 2: laying the foundation. So when we talk about business risk,

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Speaker 2: you how different is it from like liquidation you know

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Speaker 2: in our context here.

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Speaker 4: So Clement, in a nutshell, business rescue is about saving

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Speaker 4: a company and liquidation is about shutting it down. So

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Speaker 4: the business rescue process in South Africa is governed by

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Speaker 4: Chapter six of the Companies Act and it's aimed at

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Speaker 4: rescuing companies in financial distress. So and it's also all

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Speaker 4: about preserving value and saving jobs, whereas liquidation, on the

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Speaker 4: other hand, is the winding up of a company and

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Speaker 4: the company ultimately ceases to exist and the jobs are

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Speaker 4: all lost. So it's therefore a last resort mechanism for

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Speaker 4: companies that are hopelessly insolvent.

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Speaker 2: Okay, So a business rescue may end up in a

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Speaker 2: liquidation process.

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Speaker 4: Yes, if they are no longer a reasonable prospect of

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Speaker 4: success in the rescue.

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Speaker 2: Got you? Okay? So who decides when a company needs

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Speaker 2: to undergo business rescue? Is it the executive of the company?

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Speaker 2: Is that people the company? Owes? How does it work?

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Speaker 2: How is that decision taken?

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Speaker 4: There are two ways that a company can go into

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Speaker 4: business rescue. The first way, and the more common way,

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Speaker 4: is that the board of directors of a company can

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Speaker 4: adopt a resolution to voluntarily place the company in rescue.

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Speaker 4: So it's quite an easy process. The directors obviously just

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Speaker 4: need to be on board and they file a resolution

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Speaker 4: with a CIPC. The second way that a company can

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Speaker 4: go into business rescue is if an affected person applies

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Speaker 4: to court to put the company in business rescue. And

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Speaker 4: we call this a compulsory business rescue, So in most

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Speaker 4: instances it's a creditor that's applied to court to put

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Speaker 4: the company in rescue.

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Speaker 2: Oh, so creditor would do that? And are there warning

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Speaker 2: signs that a company is heading towards business rescue? And

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Speaker 2: what do you look out for? What are some of

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Speaker 2: those warning signs to say we could end up in

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Speaker 2: a business rescue process?

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Speaker 4: Here absolutely clement companies don't collapse overnight. They are always

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Speaker 4: warning signs that companies.

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Speaker 3: Must be aware of.

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Speaker 4: So some signs of distress include, for example, persistent cash

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Speaker 4: flow problems. The company can't pay their debt says they

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Speaker 4: falld you, so for example, they can't pay their creditors

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Speaker 4: and employees and supplies as they fold you. If the

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Speaker 4: company is defaulting on loans and the companies'btas is just mounting.

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Speaker 4: Those are some of the major warning signs we look

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Speaker 4: out for.

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Speaker 2: And what happens to the management and the directors, the

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Speaker 2: executives or if there is their business rescue practitioners that

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Speaker 2: are running the process. Are they doing that in conjunction

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Speaker 2: with the management with the directors.

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Speaker 4: So when the company goes into business rescue, a business

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Speaker 4: rescue practitioner is appointed, whose ultimate responsibility is to restructure

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Speaker 4: the affairs of the company and to develop a business

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Speaker 4: rescue plan. The practitioner has full management control of the

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Speaker 4: company in substitution for its board and pre existing management,

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Speaker 4: but the directors and management still stay involved in the

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Speaker 4: company operationally, but rather they act under the authority and

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Speaker 4: the supervision of the practitioner. They still need to cooperate

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Speaker 4: and work with the practitioner.

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Speaker 2: And who do they answer to those practitioners? Do do

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Speaker 2: they report and are they accountable for instance, to the

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Speaker 2: creditors that they are accountable to? Who do they report to?

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Speaker 3: Sots?

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Speaker 4: Yes, So, as business rescue practitioners, we are accountable to

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Speaker 4: all affected persons in the process, which includes the creditors

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Speaker 4: and employees of the company. And we are also officers

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Speaker 4: of the court, so we have the four responsibilities and

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Speaker 4: duties of a director of the company. We also have

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Speaker 4: fid duetary duties under Section seventy seven of the Companies.

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Speaker 3: Act like all other directors.

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Speaker 4: But I think it's important to note that our role

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Speaker 4: as practitioners is to balance competing interests in the rescue

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Speaker 4: process and to deliver the best possible outcome overall, it's

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Speaker 4: not about serving one group over the other. We are

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Speaker 4: about balancing competing and stakeholder rights and interests.

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Speaker 2: How expensive is this process, okay, len or does it depend?

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Speaker 2: Of course? I'm sure it depends also on how bigness,

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Speaker 2: how big the organization is, but is it quite an

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Speaker 2: expensive process.

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Speaker 4: So a Business Rescue Practitioners fees are actually prescribed by

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Speaker 4: the Companies Act. So BRPS will charge an hourly rate

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Speaker 4: which is linked to a tariff depending on the size

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Speaker 4: of a company. So it's not a flat hourly rate.

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Speaker 4: It's it's it's linked to the size of the company.

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Speaker 4: And BRPS can you know, formally agree with with creditors

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Speaker 4: to charge a higher hourly rate or to charge a

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Speaker 4: success fee. But it's not easy to answer the question

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Speaker 4: as to how much it costs because it really depends

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Speaker 4: on the SiZ the company, how long the the rescue

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Speaker 4: ultimately takes.

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Speaker 2: Okay, that's fascinating. I've got some calls and some what's

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Speaker 2: ups as all coming from our listeners on on one

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Speaker 2: eight eight, three oh, seven oh two, So we'll start

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Speaker 2: with the what'sapps now on seven, seven, two and seven

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Speaker 2: oh two.

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Speaker 5: Good morning, Clementary, guest, it's more an here. I went

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Speaker 5: through business rescue with SAA and it's not a nice

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Speaker 5: it's not a nice thing whereby they wind up everything

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Speaker 5: and then what said the move is that we went

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Speaker 5: through section one eight nine, section one eight nine last

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Speaker 5: in first out and you are told we called back.

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Speaker 5: Once the air line has grown, the air line is moving.

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Speaker 5: That section one eight nine was never honored and there

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Speaker 5: we're still left behind. Painful as it is, it's a

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Speaker 5: very very painful process. I feel pityful those people are

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Speaker 5: in that section experiencing it.

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Speaker 2: Now we are still suffering.

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Speaker 5: You in now come the number of from a quality

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Speaker 5: that have passed on bor Ani, thank.

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Speaker 2: You, oh thank thank you, bon any so pailin. I

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Speaker 2: suppose the question there then, is every business rescue process

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Speaker 2: will it always end up in some of the trenchments?

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Speaker 2: Is that always the case?

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Speaker 4: No, Clement, It's not always the case. But I think

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Speaker 4: maybe I should just start off by saying that in

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Speaker 4: relation to the position of employees and a business rescue,

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Speaker 4: the rights of employees are fully catered for and protected

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Speaker 4: under Chapter six of the Companies Act. In fact, employees

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Speaker 4: are elevated in the business rescue process. So the position

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Speaker 4: is that when a company goes into business rescue, the

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Speaker 4: employees remain employed on the same terms and conditions as

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Speaker 4: they were before the rescue, and so their contracts to continue. However,

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Speaker 4: retrenchments can still take place during the process, but it

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Speaker 4: must be done strictly in accordance with our labor laws.

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Speaker 4: There must be fair labor practices and so yes, retrenchments

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Speaker 4: are unfortunately a huge part of business rescue in assisting

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Speaker 4: the financially distressed company with restructuring its affairs. But employees

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Speaker 4: must always be protected the under the labor laws. And

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Speaker 4: I'd also like to say that, you know, while not

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Speaker 4: all jobs of employees can be guaranteed in the business

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Speaker 4: rescue process, it is important to note that one of

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Speaker 4: the major purposes of business rescue is to save as

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Speaker 4: many jobs as possible. It's one of the reasons that

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Speaker 4: business rescue actually came about. But unfortunately it's it is

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Speaker 4: a really sad part of the process that not all

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Speaker 4: employees can can be kept. And yeah, but like I said,

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Speaker 4: the section one eight nine process you know under the

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Speaker 4: labor relationship needs to be followed.

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Speaker 6: Clement, I'm curious about the difference between business rescue and

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Speaker 6: judiciary management.

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Speaker 2: Account business to the creditors.

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Speaker 6: Which was previously the model used as you know, as

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Speaker 6: a as a rescue mechanism.

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Speaker 2: Why was there shift between from.

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Speaker 7: A judiciary management between business risk and what are the

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Speaker 7: benefits and what are the actual real life benefits being

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Speaker 7: to compare the two models.

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Speaker 2: Mmmm. Okay, So the difference then between judicial intervention killeen

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Speaker 2: and business rescue.

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Speaker 4: So we used to have judicial management which was just

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Speaker 4: leading to two liquidations. The majority of the time, the

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Speaker 4: legislature and regulators knew that we needed something, something better

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Speaker 4: and that's where business rescue came about.

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Speaker 3: And we are having.

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Speaker 4: Far more success with business rescue because one of the

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Speaker 4: main aims of business rescue is to avoid a liquidation.

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Speaker 4: And so I'd say that's the simple answer to what

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Speaker 4: the difference is between judicial management and business rescue. Business

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Speaker 4: rescue is leading to more success successful you know, restructures

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Speaker 4: of companies, whereas in the past a lot of these

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Speaker 4: viable businesses would go into liquidation. And that is before

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Speaker 4: we had this very dynamic mechanism of business rescue in

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Speaker 4: South Africa.

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Speaker 2: Okay, Another question here says, if a business risky fails

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Speaker 2: and liquidation follows, are there consequences for the directors or

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Speaker 2: executives that management or any especially when there's also a

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Speaker 2: bit of wrongdoing that is uncovered. And can a business

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Speaker 2: risky process also uncover that?

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Speaker 4: Yes, So just to take a step back, the company

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Speaker 4: that provides that once a business to rescue practitioner is appointed,

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Speaker 4: he or she must investigate the company's affairs, its business,

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Speaker 4: its property, and financial situation. If the practitioner finds any

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Speaker 4: evidence of registrating or fraud or any criminal conduct, then

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Speaker 4: the practitioner must report the evidence to the relevant authorities

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Speaker 4: for further investigation and possible prosecution. Now, should liquidation eventually follow,

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Speaker 4: one of the powers that a liquidata has is that

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Speaker 4: they can actually convene an insolvency inquiry and properly investigates

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Speaker 4: what transpired. Even further, and if any wrongdoing or recustrating

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Speaker 4: is uncovered, directors can be held personally liable for the

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Speaker 4: debts of the company and also potentially face criminal liability.

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Speaker 2: Okay, there's another one, Cleveden to see.

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Speaker 8: My question to your guess is why choosing business rescue

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Speaker 8: than at in her own strategy?

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Speaker 2: David David Kelley.

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Speaker 4: So, there are very various benefits and advantages of business rescue,

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Speaker 4: procedural and substantive benefits.

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Speaker 3: I won't get into all of them now.

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Speaker 4: But I'd say one of the major benefits of business

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Speaker 4: rescue is that once the company goes into business rescue,

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Speaker 4: there is what's called the moratorium that kicks in to

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Speaker 4: protect the company, and what that means is that no

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Speaker 4: legal proceedings can be taken against the company, and so

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Speaker 4: it is essentially a bubble that it's placed around the

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Speaker 4: company to give it breathing space while the practitioner restructures

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Speaker 4: its affairs.

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Speaker 3: So that's one major plus.

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Speaker 4: Something else that I think is really important is as

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Speaker 4: I mentioned, is that an independent business rescue practitioner steps

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Speaker 4: into the shoes of the directors once the company goes

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Speaker 4: into business rescue. And this is a practitioner somebody who's

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Speaker 4: highly knowledgeable and experienced in doing this very specialized work

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Speaker 4: in restructuring a company's affairs. And so you in essence,

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Speaker 4: have someone who is able to take this financially distressed

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Speaker 4: company and assist it with successfully restructuring its affairs and

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Speaker 4: at the same time balancing various stakeholders rights and interests.

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Speaker 2: Okay, let's go to this question before some more. What's

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Speaker 2: a voice notes next SSS Clement, How is a business

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Speaker 2: meant to be rescued with an additional expense? It's a

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Speaker 2: farce to me, just loose the business and move on.

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Speaker 2: That's a message from neck. But Kyleen, you spoke earlier

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Speaker 2: about really better chances of a company surviving when it

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Speaker 2: goes through this kind of process. Yes, and then to listen.

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Speaker 4: No, I also just want to maybe clarify something when

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Speaker 4: we talk about a successful businusiness rescue and what actually

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Speaker 4: entails a successful business rescue. Chapter six of the Companies

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Speaker 4: Act is quite clear there are two goals of business rescue.

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Speaker 4: The primary goal, and obviously the most ideal, is to

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Speaker 4: restore the company to full solvency. But the secondary goal,

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Speaker 4: if it's not possible to restore the company to solvency,

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Speaker 4: is to achieve a.

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Speaker 3: Better term for creditors.

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Speaker 4: Than what they would receive in an immediate liquidation. So

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Speaker 4: the success of business rescue is not just measured by

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Speaker 4: whether a company survives. If creditors are paid more in

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Speaker 4: a business rescue then they would receive in a liquidation scenario,

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Speaker 4: that is also considered a successful rescue. And so that

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Speaker 4: is something that we look at because when you liquidate

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Speaker 4: a company, the value is destroyed, whereas business rescue is

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Speaker 4: about preserving value. And if, for example, we sell the

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Speaker 4: assets in the business rescue, we can sell them at

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Speaker 4: market related value and therefore for receive more than we

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Speaker 4: would in a in a liquidation where everything is sold

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Speaker 4: at a fire cell value.

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Speaker 2: High clement.

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Speaker 1: So my question is around liquidation as to how does

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Speaker 1: liquidation work. More so that liquidation processes that employees become

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Speaker 1: preferential sort of creditors that the business then owes. So

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Speaker 1: my question is how long does liquidation take and what

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Speaker 1: needs to be sold for the employees to be paid out?

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Speaker 1: There money following a liquidation process that has taken place.

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Speaker 1: And also just want to understand will will they affected

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Speaker 1: employees receive full amounts that are owed to them or

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Speaker 1: it will depend on what is sold and what is

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Speaker 1: not sold. And my last question is what has to

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Speaker 1: be sold for the liquidation process to be said to

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Speaker 1: be successful so that all the preferential creditors that A

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Speaker 1: is the employees be paid out.

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Speaker 2: Yeah, quite a complicated question, Klein, because there are a

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Speaker 2: few of them. So how long does liquidation take? How

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Speaker 2: long before the employees can get paid and do they

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Speaker 2: get paid in full or does it depend on what's

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Speaker 2: sold during that liquidation process?

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Speaker 4: Yes, okay, so I'll give the short and simple answer. So,

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Speaker 4: in a liquidation, the liquidata pointed will essentially sell all

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Speaker 4: the assets and distribute the proceeds to creditors in accordance

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Speaker 4: with the hierarchy in the Insolvency Act, employees rank as

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Speaker 4: a presferent creditor in the inner liquidation, so they do

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Speaker 4: stand in line for payments above other creditors, but in

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Speaker 4: terms of what they'll ultimately receive is really dependent on

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Speaker 4: what the liquidator can realize in a liquidation. You know,

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Speaker 4: sometimes there isn't much left in the pots for preferent

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Speaker 4: creditors like employees and size after secured creditors have been paid.

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Speaker 4: Sometimes there is enough in the pots, and then for example,

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Speaker 4: concurrent creditors you know, won't won't receive anything if there's

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Speaker 4: nothing left. But ultimately it depends on the value of

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Speaker 4: the assets that have been sold and how much is

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Speaker 4: actually there to be distributed to to creditors and including employees.

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Speaker 3: So it really is.

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Speaker 4: Dependent on the particular liquidation. As for how long it takes,

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Speaker 4: that is also a difficult question to answer.

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Speaker 3: It's the same as business rescue.

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Speaker 4: You can never say upfront how long the process is

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Speaker 4: going to take because there are so many factors that

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Speaker 4: play a role in that process. And that's why it's

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Speaker 4: so important to consult with a restructuring professional who can

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Speaker 4: look at the company's unique fundinancial positions, what needs to

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Speaker 4: be done, and then can actually give give advice as

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Speaker 4: to how long the process may take, which is also

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Speaker 4: obviously never a guarantee because gonness, rescue and liquidation proceedings

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Speaker 4: are by their nature sometimes complex, so it really depends

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Speaker 4: on the particular company. But obviously I can say that

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Speaker 4: you know the aim is to is never to delay

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Speaker 4: or draw it out or drag it out unnecessary unnecessarily.

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Speaker 4: You know, you a liquidator needs to go in there,

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Speaker 4: do what needs to be done and wind up the

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Speaker 4: company as quickly and efficiently and as properly as possible.

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Speaker 4: You're in the best interests of everybody concerned.

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Speaker 9: Hikerment, your discussion with your specialist has brought the following

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Speaker 9: picture to my head. It's when you're saving a three

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Speaker 9: that is about to die. You need to trim some

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Speaker 9: of the branches, cut off some old dead branches, and

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Speaker 9: then revive the tree so that it can grow instead

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Speaker 9: of taking out the whole tree. That is how I

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Speaker 9: see this business rescue versus collapsing of the business.

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Speaker 10: That's just how I see great program. See ow Pretoria

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Speaker 10: to you Clement Crass into our case. They and cors

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Speaker 10: to the same over two landers there. I just wanted

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Speaker 10: to know. But we are our right to violate it

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Speaker 10: because the company claimed that they're in the business rescue

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Speaker 10: and all of that, and the retrenched like nine of

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Speaker 10: the company, you know, and we were like notified five days.

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Speaker 10: You know it because the twenty fifth of July last

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Speaker 10: year they notified us and then we had to finish

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Speaker 10: on the first of July. And then on the returnshment

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Speaker 10: letter it stated that they will give us three months

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Speaker 10: salary plus or leave play and all other benefits.

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Speaker 8: But we never got anything. We only got one month

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Speaker 8: salary that was the month of August after July, and

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Speaker 8: then we will keep on asking for our money. We

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Speaker 8: never got it. The bluetickus when we watched them, and

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Speaker 8: then eventually we went to go make up a girl.

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Speaker 8: We'll open the case at the c CMA, so you

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Speaker 8: gon't went to the c cm A and then the

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Speaker 8: case was just kicked out. It was just said that

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Speaker 8: the company can't pay off just like that. But it

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Speaker 8: stated on the letter. So yeah, we tried so many

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Speaker 8: platforms and uh yeah, it was a problem for us.

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Speaker 8: This c I just feel that the CCM also failed

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Speaker 8: us in that regard. So going forward, if it happens

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Speaker 8: to the other people, what advice can be given in

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Speaker 8: a situation like.

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Speaker 4: This, Clement, You know, I obviously can't comment on on

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Speaker 4: on watch one spot in that matter, but what are

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Speaker 4: can say is this is again just completely emphasized the

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Speaker 4: importance of having the rights restructuring professionals and advisors advising

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Speaker 4: you in the process to make sure that your rights

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Speaker 4: are fully catered for and protected and that you know,

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Speaker 4: an employee, for example, is not being taken advantage of.

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Speaker 4: So the importance of having the right team behind you.

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Speaker 4: And I know it's not always, you know, as simple,

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Speaker 4: because it costs money to appoint an advisor or a

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Speaker 4: structuring professional or insolvency partitioner to you know, to look

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Speaker 4: into this for you, but it is ultimately truly worth

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Speaker 4: it because then you know that person who is assisting

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Speaker 4: you can make sure that the correct processes are being

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Speaker 4: followed and that ultimately your rights are being fully protected

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Speaker 4: and catered for.

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Speaker 2: Got it, Colin, thank you so much. You've been helpful

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Speaker 2: really helping us understand this business rescue processor archyleene Veyers

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Speaker 2: is an associate director at Video