Cape Town - Business rescue is considerably more successful in South Africa than the general perception thereof, Neill Hobbs of Anuva Investments told Fin24 on Tuesday.
"The perception is that business rescue is a dismal failure, but statistics prove this wrong. The common misconception is to compare the number of business rescues entered into - say for instance 3 000 - to the successful terminations - say for instance 500," explained Hobbs.
"Rather look at the successful terminations compared to the total number of terminations, say for instance 1 000. Over a period of time, say, 48% of business rescue terminations were successful."
Hobbs said originally business rescue was perceived to be a quick fix, but history has proven it is actually a much longer term fix.
In his view, one should not see the odd individual "horror story" of a business rescue experience as reflective of the whole industry.
"In my experience the cases of successful business rescue have little to do with bank funding and have little controversy to them. In most of my successful business rescue cases where banks have been involved, they were paid in full," said Hobbs.
Early start
Hobbs emphasised that it is important to consider business rescue as soon as a business gets into financial distress.
"Choose a business rescue practitioner with a good reputation. Ask around," suggested Hobbs.
He also advises businesses to have a lawyer to protect their interests throughout the business rescue process and to make sure the business rescue practitioner is doing the job properly.
"If it is a company with a significant investment, then it is worthwhile in my view to have a lawyer in this regard," said Hobbs.
"Also check with your creditors if they get the business rescue payments. Remember, directors of a company are not disempowered by business rescue. They can still ask questions and still have a duty to the company and the creditors."
READ: Time to amend Business Rescue Act?
Example
Hobbs gave an example of one of his successful business rescue cases relating to a company with almost 500 employees. The company opted for business rescue early on when it was dependent on short term funding. It made a loss on one contract, which then destabilised them.
"We were able to keep all the jobs and the company made a profit of R12m during business rescue. We were able to introduce additional funding for it and the creditors got between 50c and 100c in a rand depending which option they chose," said Hobbs.
As for creditors, he said it is key for them to work with the business rescue practitioner to support the company in business rescue.
READ: Business rescue explained
"It is best for everyone if a company can continue to trade under business rescue. Creditors can then reduce their exposure on an ongoing basis. It certainly helps to have time on your side," said Hobbs.
He also found that the quality of communication a company has built up with creditors will play a big role in whether they are willing to support it during business rescue or not. For instance, is there a history of broken promises over the years?
Creditors should also take into account the burden of debt a company is able to carry going forward.
"Suppliers would rather continue to supply and like I said the key is to engage about business rescue early enough."
Hobbs uses another example from his own experience where a business had only one major creditor - a bank. It needed to buy three months' time. During this business rescue period of three months it was able to make 100% payment to its creditors and it is still operating today.
"Initially there was a lot of hope about what business rescue could do. Practitioners then learnt how to do the job better and choose what is rescuable," said Hobbs.
"There certainly is a place for business rescue. It is not as catastrophic as liquidation where everyone loses and the cost is more expensive."
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