Business rescue can help looted and damaged businesses

Business rescue can help looted and damaged businesses to rebuild, restock and reopen after the unprecedented unrest last week, which saw thousands of businesses stripped bare, looted, ransacked and even burned down.

Pepkor Holdings alone lost 489 of its retail stores, or 9% of its overall portfolio. Research published by PwC indicated that national gross domestic product (GDP) growth would decrease by 0.4 percentage points this year due to the significant disruption of the economy, while up to 50,000 jobs could be at risk.

The country was already considering business rescue to save some of the most prominent businesses that were in trouble due to the impact of the pandemic, Lerothodi Mohale – senior associate in business rescue at Cliffe Dekker Hofmeyr – said.

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He says the burning of trucks already affected big and small businesses even before the unrest and looting started.

“The difference is that the big companies usually have Sasria insurance, but the small shops not. The insurance cover will pay out, but the problem is the time that is lost when you have to spend the time you would use for finding new business to rebuild the one you had.”

Mohale expects small businesses to opt for business rescue because it is the only way they can avoid paying all their debts while they have no income and no insurance payouts. The benefits of business rescue are that a moratorium is placed on legal proceedings to recoup debts, which gives the business owner some breathing space.

“A third party business rescue practitioner is also commercially-minded and unemotional, which makes it easier to take the right decisions for the business, while a business rescue practitioner with a good reputation will also have access to funding to help the business get off the ground again or help to sell its assets to pay the creditors a better return.”

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The state of business rescue in SA

Mohale says business rescue has reached a state of maturity since it was implemented in 2011 after it was viewed with a lot of pessimism the first few years. However, when high-profile clients such as SAA and Edcon went into business rescue, opinions changed when people saw how well it works.

Impact of riots on business rescue

The riots had a two-fold impact, Mohale said.

“Firstly people will wonder about business rescue and ask if it will work for them. The important point is to listen to the commercial reality and decide if the business is a good candidate for business rescue. Is the business maybe too far gone or is there something left to save and can it still make money?”

He points out that this is also an opportunity for mergers and acquisitions, where big companies buy shares in the business.

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Legal steps to apply for business rescue

Mohale says the golden rule business should keep in mind is that the business must be financially distressed now, but able to pay its debts after the next six months or if its assets will exceed its debt during this time.

“Companies also have an obligation to go into business rescue, otherwise they will be accused of reckless trading. A pre-assessment will also show if the company is commercially viable.”

How business rescue helps economic recovery

Business rescue helps economic recovery because it preserves employment and increases the ability to obtain funding and rebuild.

It can even lead to foreign direct investment for companies with an appetite for risk because companies will be for sale for a cheaper price.