By Sandra Beswick
Business rescue has gained an undeserved reputation in recent years for forcing companies into liquidation, leaving the directors with their hands tied and causing great losses for creditors.
While there have been a few horror stories since the practice of business rescue commenced in 2011, in reality it has delivered substantial gains for companies in financial distress, not least in retaining jobs.
The Companies Act 2008, Chapter 6 introduced business rescue to provide a new process of restructuring companies in financial distress, to replace judicial management.
Its main objective is to prevent liquidations which will ultimately result in retaining much needed jobs, thus protecting employees and their families from the catastrophic multiplier effect of losing a job.
Job Losses a Disaster for South Africa
The current recession, negative economic climate, junk status and the political shenanigans, particularly corruption, are having a disastrous effect on jobs. Instead of seeing new jobs created, news of mass retrenchments are the order of the day.
The statistics of the formal unemployment rate particularly among the youth and unskilled people are cause for serious alarm for both the public and private sectors. We are experiencing unprecedented levels of unemployment. The consequent potential for unrest from desperation could be disastrous for the country.
One only has to travel around industrial areas to see how many people are waiting patiently to see if they can get any job. I personally find it very distressing to see the air of despondency in their postures and demeanours.
Employees’ Rights in Business Rescue
During business rescue proceedings, employees remain employed on the same basis as the terms of their employment contracts with their benefits and remuneration remaining intact. While practitioners have the power to suspend contracts, they may not do so in the case of employees unless by mutual agreement. The retrenchment process is implemented according to Section 189 of the Labour Relations Act.
It is obligatory for affected parties, creditors, employees and shareholders to be included in the proceedings. Employee’s rights are protected in line with South Africa’s laws. They are important stakeholders in the process:
• Employees are entitled to receive all the notices relating to the proceedings and attend meetings;
• The practitioner should consult with them during the development of the plan;
• During the first and second meetings employees can make submissions;
• They also have voting rights.
Saving Jobs through Business Rescue
In my capacity as a business rescue practitioner I have a responsibility to retain jobs of all employees, no matter their level in the organisation, and to keep people employed.
Getting buy-in from all employees is critical, as they need to continue to operate the business on a day to day basis as well be involved in the turnaround process. Their involvement in the development of the business rescue plan is imperative and team work is required for the rescue to succeed.
In my experience, the most common causes of business distress are usually management making “bad” decisions and not acting at the first signs of impending distress. In fact the workers have little or no impact on the state of the business. So we need to get away from the legacy of our past and treat people fairly without prejudice.
Practitioners should have a “save jobs” philosophy and not run at the first sign of trouble.
Our approach as a business rescue team is to ensure that employees are paid timeously, in some instances even before our own fees are paid.
A Need for Post Rescue Finance
The banks and major creditors should consider providing much needed Post Commencement Finance (PCF). An attitude of assistance, rather than withholding proceeds from secured debtors books would result in more businesses being saved and with it retention of jobs. Evaluation of the risks should include a review of the “commercial” aspects of the business.
A successful business rescue will deliver better return for the affected parties compared to immediate liquidation. During the proceedings, suppliers that provide PCF can mitigate their losses from the pre-commencement debts by increasing their turnovers and profits from sales post business rescue.
Harness the Value of the Employees
- We have learned some important lessons from business rescue proceedings:
Do not underestimate the knowledge that workers and other lower level employees have about the state of the business.
- We always get truthful information about the cause of the distress from the employees on the factory floor and the administration department – ignore these employees at your peril.
- The commitment of the employees in most of the rescues we have undertaken is unwavering despite the uncertainty facing them.
- It’s vital to instill a team spirit and work with employees in the development of the plan and the day to day operations.
Put Job Retention in the Spotlight
Job creation has seized the limelight in both the private and public sectors, particularly when it comes to funding. There are so many funding mechanisms available to entrepreneurs attempting to start businesses in the SMME sector despite the perception that this is not the case.
Sadly job retention receives much less attention – yet it’s vital for the sustainability of businesses and the economy. This is where the impact of business rescue deserves recognition.
South Africa has many reputable and able business rescue practitioners who are quietly devising innovative and viable interventions to assist business owners in their mission to save jobs. I would really like to see the spotlight turned onto the many heroic practitioners who are helping thousands of companies across South Africa to continue trading.