Corporate Renewal Solutions Blog

View of and news about the topics and industries of corporate renewal, business transformation, turnaround and business rescue in South Africa.

Friday, July 13, 2007

King III Committee on Governance: Business Rescue Subcomittee appointed

King III Commission on Corporate Governance

Members of the Business Rescue Subcommittee are:

  • Professor David Burdette (University of Pretoria) (Convener).
  • Professor Anneli Loubser (University of South Africa).
  • Martin Leigh (Standard Bank).
  • Lawrence Ngobeni (Safrust).
  • Patrick Daly (Daly Maqubela Oliphant).
  • Judge Ralph Zulman.
  • Jan van der Walt (Corporate Renewal Solutions).

This turnaround news flash was brought to you by CRS Turnaround Management - turnaround management consulting firm rescuing distressed companies and improving results of underperforming companies in South Africa.

Tuesday, June 26, 2007

Feedback on Department of Trade and Industry workshop on Chapter 6 of the Companies Bill (Business rescue)

If the views of the business rescue workshop participants will be taken into account, it may lead to key changes in the next draft of Chapter 6. 

Participants included the following:

  • Tshepo Mongalo, Chairperson and Project Manager: Company Law Reform.
  • Linda van Dieman: Assistant Director: Department of Trade & Industry.
  • Bongi Mncube, Team Assistant: Department of Trade & Industry.
  • Mpheane Lepaku, Deputy Director: Department of Trade & Industry.
  • Nica Rakau, Legal Unit Head, National Union of Mineworkers (an affiliate of COSATU).
  • Janek Wilimiec, Manager: Legal Services, FEDUSA.
  • Justice Basheer Waglay, Judge of the Cape High Court.
  • Shibishi Samuel Maruatona, Director, Business Leadership South Africa.
  • Sisa Njikelana, Member of Parliament of the Republic of South Africa and of the Portfolio Committee on Trade and Industry of the National Assembly.
  • Tebogo Marishane, National Treasury.
  • Ashley Benjamin, Official of FEDUSA, Durban.
  • Fachmy Abrahams, National Collective Bargaining Officer, SACTWU, (an affiliate of COSATU).
  • Prakashnee Govender, Policy Researcher of COSATU.
  • Jenny Meyer, Group Company Secretary, Anglo Platinum Ltd.
  • Karin Rathbane, Associate, Deloitte, Johannesburg.
  • John Evans, Principal, Deloitte, Pretoria.
  • Kgosi Monaisa, Principal Company Secretarial Advisor, SASOL Ltd.
  • Themba September, Chairman, Association of Business Administrators in South Africa (ABASA).
  • Werner Joubert, Legal Credit, Rand Merchant Bank.
  • David Burdette, Professor, University of Pretoria.
  • Kevin Cron, Director, Deneys Reitz, Johannesburg (Representing the Banking Association).
  • James Davies, Partner, Webber Wentzel Bowens, Johannesburg.
  • Adam Harris, Council, Bowman Gilfillan.
  • Rory Voller, Director: Legal Services, Companies & Intellectual Property Registration Office.
  • Trevor Murgatroyd, Head: Business Support, ABSA.
  • Martinus Cronje, Researcher, South African Law Reform Commission.
  • Mervyn Swartz, Owner, MI Swartz & Associates.
  • Robin Taggart, Manager, NEDBANK.
  • Robert Driman, Director, Deneys Reitz.
  • Anneli Loubser, Professor, University of South Africa.
  • James Galloway, Manager, KPMG.
  • Kevin Cochran, Legal Adviser, NEDBANK.
  • Callie Lombard, Acting Head: Legal Business Support, ABSA.
  • Jan van der Walt, Risk Manager, FNB.
  • Steve Yardley, Franchise Manager, Woolworths.
  • Christiaan Lamprecht, University of Stellenbosch.
  • Goolam Harneker, Finance Manager, Woolworths.
  • Martin Leigh, Director, Standard Bank.
  • Jean du Plessis, Head: Workout and Restructuring, Industrial Development Corporation (IDC).
  • Lawrence Ngobeni, Director, SAFTRUST.
  • Jan van der Walt, CEO, Corporate Renewal Solutions.
  • Nicky Lala Mohan, General Manager, Banking Association.
  • Kenneth Shibambo, M.S.O., SASBO.
  • Siphiwo Gangca, Labour Market Co-ordinator, NACTU.
  • Victor Mabuli, Association for the Advancement of Black Accountants in South Africa (ABASA).
  • Jill Oliphant, Attorney, DMO Attorneys.
  • Thavi Padiachy, Director, African General Equity Financial Solutions.
  • Sechaba Moletsane, Director, Tsebo Consulting.

The following organisations were represented:

  • The Department of Trade and Industry.
  • Congress of South African Trade Unions (COSATU).
  • The Federations of Unions of South Africa (FEDUSA).
  • The Standing Advisory Committee on Company Law in South Africa (SACCL).
  • Business Unity South Africa (BUSA).
  • Portfolio Committee For Trade & Industry of Parliament of the Republic of South Africa.
  • National Treasury.
  • Southern African Clothing and Textiles Workers Union (SACTWU).
  • National Union of Mineworkers (NUM).
  • Anglo Platinum Ltd.
  • Deloitte.
  • Sasol Ltd.
  • Association of Business Administrators of South Africa (ABASA).
  • Joubert & Robertson.
  • University of Pretoria.
  • Banking Association of South Africa (BASA).
  • Webber Wentzel Bowens (WWB).
  • Association of Insolvency Practitioners in South Africa (AIPSA).
  • Companies & Intellectual Property Registration Office (CIPRO).
  • ABSA Bank Ltd.
  • Department Of Justice & Constitutional Development.
  • Association of Chartered Secretaries & Administrators in South Africa (ICSA).
  • NEDBANK Ltd.
  • Deneys Reitz.
  • University of South Africa (UNISA).
  • KPMG.
  • FNB Ltd.
  • Turnaround Management Association - Southern Africa (TMA-SA).
  • Standard Bank of Southern Africa Ltd.
  • Industrial Development Corporation (IDC).
  • Corporate Renewal Solutions.
  • SASBO.
  • National Council of Trade Unions (NACTU).
  • African General Equity Financial Solutions.
  • Tsebo Consulting (Pty) Ltd.

The dti prepared a feedback document on the business rescue workshop, which it distributed on Monday 25 June.  However, the dti requested that the feedback as well as documentation distributed at the workshop be kept out of the public domain for the time being.

Corporate Renewal Solutions, as a participant in the ongoing consultation process with government regarding new business rescue legislation, wishes to respect government's wishes and this web site will therefore not comment on proceedings until such time as government has released official information in this regard.

For complete information, see Turnaround events.

This turnaround news flash was brought to you by CRS Turnaround Management - turnaround management consulting firm rescuing distressed companies and improving results of underperforming companies in South Africa.

Tuesday, May 22, 2007

Department of Trade and Industry workshop on Chapter 6 of the Companies Bill (Business rescue)


This closed workshop on Monday 11 June is for those parties and individuals that were invited by dti based on their submissions of comments on draft legislation received by 30 March 2007.

Issues to be discussed

  • Should the South African Business Rescue regime be more ‘creditor friendly’ (in the manner of the insolvency regime) or more ‘debtor friendly’ (in the manner of turn around regimes in many other jurisdictions)?
  • Who or what parties should be entitled to institute the business rescue proceedings?
  • What is the appropriate triggering mechanism for a business rescue process:  Is it insolvency (or imminence of insolvency), an insolvency event, or some earlier other event/circumstance and, if the latter, how should this be defined?
  • How can the process provide for adequate and meaningful consultation with stakeholders before a final decision is made to proceed with formal business rescue plan?
  • What is the proper role and place of the supervisor?  What qualifications, if any, are needed?  What, if any, supervision or regulation of supervisors is needed?  To whom does the supervisor owe a duty?  Should the Bill permit performance compensation of the supervisor?
  • Is it reasonable or necessary to designate some creditors as ‘independent’ for the purpose determining their voting rights in the process?
  • What should the position of providers of post-commencement financing be relative to pre-commencement creditors?  Should the Bill compel suppliers, etc, to continue supplying the business under business rescue and, if so, what should the position be?
  • If a business rescue calls for a fundamental transaction (i.e. scheme of arrangement, sale of substantially all the assets or undertaking, merger or amalgamation), should that transaction be exempt from Takeover Regulation Panel or continue to be subject to Panel supervision in addition to business rescue approval regime?
  • To the extent that business rescue is to be judicially scrutinised, should it rely on the High Court or is a Specialist Court/Tribunal preferable and, why?
  • Should there be a role for the current section 311 compromises in business rescue process?

For complete information, see Turnaround events.

This turnaround news flash was brought to you by CRS Turnaround - turnaround management consulting firm rescuing distressed companies and improving results of underperforming companies in South Africa.

Thursday, April 26, 2007

Where are liquidation statistics heading to?

Click on the thumbnail for an enlarged view of the most recent liquidation statistics (March 2007).


Compulsory company liquidations per month   Monthly compulsory company liquidations per annum

After a surge towards the end of 2006 as a result of past interest rate increases, compulsory company liquidations dropped significantly to only 4 per month during the first three months of 2007 despite expectations of an increased level during 2007.  With compulsory company liquidations serving as a lagging indicator of turnaround activity, it indicates that the turnaround management industry in South Africa is off to a slow start in 2007.

Read more at liquidation statistics.

This turnaround news flash was brought to you by CRS Turnaround - turnaround management consulting firm rescuing distressed companies and improving results of underperforming companies in South Africa.

Wednesday, April 25, 2007

Turnaround educational events in May 2007

Three events are taking place in May 2007 that can be attended to further your professional development in turnaround. 

Business rescue legislation panel discussion on 3 May 2007 at Deloitte

The programme and panelists for the two hour programme are taking shape:

  • Opening remarks by the Chairman Judge Ralph Zulman.
  • Panelists (about 10 minutes each)
    • The business rescue process (commencement, supervisor appointment, business rescue plan publication and approval, critical path, termination) by Jan van der Walt.
    • The supervisor (who is he/she?; need for regulation, admission criteria, exam, etc.) by John Evans.
    • Impact on banks (creditors not appointing the supervisor, shift in decision-making power away from secured creditors, Banks' secured lending base will be eroded, etc.) by Martin Leigh.
    • Impact on the liquidation industry by Hans Klopper.
    • The academic perspective (debtor-friendly company business rescue legislation vs. creditor-friendly present and future insolvency legislation, etc. by David Burdette.  
  • Floor discussion - questions to panelists and open debate.  Keith Braatvedt is the additional panelist to answer legal questions. 
  • Closure by Chairman.

AIPSA conference on the Companies Bill 11 May 2007

This 5-hour programme also covers draft business rescue legislation by Prof. David Burdette.

Programme: Managing a Turnaround 10 - 14 May at Wits Business School

This 5-day programme will teach you all you need to know about turnaround of underperforming and distressed businesses.

Corporate turnaround and rescue strategies workshop 28 - 29 May 2007

The purpose of the two day workshop is to give an overview of current developments in corporate turnaround and restructuring in South Africa and to further develop rescue strategies for organisations facing insolvency.

For complete information, see Turnaround events.

This turnaround news flash was brought to you by CRS Turnaround - turnaround management consulting firm rescuing distressed companies and improving results of underperforming companies in South Africa.

Wednesday, April 18, 2007

Business rescue key success factors

In a previous post Draft business rescue legislation - main features the main characteristics of new business rescue law was summarised.

This post is a follow-up dealing with key success factors for business rescue in South Africa.

When to rescue which businesses

Avoid the need for business rescue

The earlier each stage in the sequence of management-led correction - informal creditor workout - business rescue starts on the timeline of financial distress, the better the chances of successful business rescue should the first two processes fail, or the better the chance that formal business rescue can be avoided in the first place.

In practice, however, management-led correction and informal creditor workouts already suffer from late starts, or they take too long before taking the shape of a serious turnaround intervention.

Expedite business rescue if the need for it cannot be avoided

The reason for the unnecessary high failure rate of business rescue internationally is that it is deemed to be a measure of last resort - often postponed until the company is in an advanced stage of distress.  Directors and managers may resist business rescue since they fall under the supervision of a third party (the Supervisor in terms of Chapter 6 of the Companies Bill, 2007 in South Africa) in charge of business rescue, and they fear the negative impact on the business of the stigma of insolvency.  In countries with a legacy of English law like SA, business rescue taking place under laws carries the stigma of insolvency, leading to loss of prestige, staff and customers. This may lead to reckless or insolvent trading.  Moreover, the cost of formal business rescue is such that management-led correction and informal credit workout, which are attempted first, may be prolonged too much before placing the business under supervision.  The late timing of business rescue commencement represents a major obstacle to its viability.

Rigorous application of laws against reckless / insolvent trading

Although the current Companies Act provides for personal liability of directors in certain limited cases, section 93 of the new Bill goes all the way by making directors personally liable to companies and others who suffered losses because of misleading financial statements, untrue annual reports and reckless carrying on of a company’s business.

In addition to personal liability, section 215 of the Bill makes reckless management and failure to comply criminal offences subject to 10 years imprisonment and high fines.

Pre-packaged business rescue rather than free fall business rescue

If business rescue is left too late, it will present the supervisor with the most difficult scenario possible - that of free fall business rescue. 

Free fall business rescue refers to placing a company under supervision as a last resort when it has run out of cash and cannot meet its creditor obligations anymore.

Such cases are normally dead on arrival.  By this time the situation has deteriorated so far that the realm of the "deep turnaround" has been entered into:

  • No borrowing capacity.
  • Banks will not lend even if there is borrowing capacity - making it difficult to get post-commencement finance.
  • Difficult, if not impossible, to obtain private equity funding.
  • Suppliers stopped supplying, tightened up on credit terms and/or asked for up front payment.
  • Key clients stopped buying or hedged their bets by shifting their purchases to more stable competitors.
  • Key staff is long gone to better situations or preparing to move.

Overseas experience shows that business rescue attempts once already insolvent and out of cash has a lower success rate than those that started earlier.

In the USA the free fall approach to Chapter 11 of old is more and more replaced by pre-packaged Chapter 11.  The same trend is evident in the UK.

Pre-packaged business rescue involves timeously devising a sale, or a business rescue plan inclusive of financial restructuring and agreements for post-commencement finance, as well as agreements with all affected persons, when it is clear that there is not enough time to turn the company around before insolvency has set in. 

This takes place prior to the company being placed under supervision when it still has borrowing capacity, and intact management, systems, and supplier and customer relations.

The company is then placed under supervision before or when insolvency has set in to obtain the legal benefits such as the moratorium on the rights of claimants against the company or in respect of property in its possession. 

The resultant business rescue cost and total cost of the overall exercise is much cheaper, business rescue takes shorter, and the success rate and claim holder recovery rate is higher than free fall business rescue.

Since the supervisor must be independent of the company, and cannot appoint advisors to the supervisor or to the company that are not independent of the supervisor and the company, it would seem that advisors involved in preparing the pre-packaged business rescue cannot become the supervisor, nor can they be appointed by the supervisor (but they can be appointed by management).

It seems that statutory recognition to translate out-of-court practice into the legal business rescue framework in terms of pre-packages solutions and recognition of the workout advisors as "independent advisors" will be beneficial to business rescue outcomes.

Avoid attempting the business rescue of lost cases

In statistical terms, the purpose of business rescue is to avoid making a Type 1 error, which is liquidating potentially viable businesses that should be rescued.

Conversely, Type 2 error refers to attempting to rescue lost cases that should be liquidated.

The cost of Type 2 error is the cost associated with the unsuccessful rescue attempt plus the cost of subsequent liquidation.

Supervisors need to be trained and educated to recognise hopeless cases early on during the business rescue process to enable them to speedily terminate business rescue proceedings allowing liquidation to proceed without delay.

An effective business rescue legal framework and judicial infrastructure

South Africa has the ideal opportunity to craft and formalise the most suitable modern business rescue regime.


This far the dti distributed the draft legislation for comment and held a business rescue panel discussion at the Companies Bill Conference 19 - 20 March 2006.

"The Department of Trade and Industry has started a consultation process with industry.  In the period leading up to the adoption of the draft business rescue legislation, there will be intensive engagement with all stakeholders.  This will include the evaluation of public comments, the redrafting of difficult sections of the law, amendments to the technical omissions and the resubmission to key stakeholders for further input."

The rest of the promised consultation process has not been clarified yet, but industry wish to engage with government with regard to its questions, clarifications sought and contributions made.

Promotion of debtor-friendly legislation

The debtor-friendly nature of the draft legislation is foreign the creditor-friendly culture and experience of South Africa, with vested interests in a creditor-friendly approach.

The dti needs to produce an Explanatory Memorandum and launch further initiatives to sell the merits of debtor-friendly legislation to industry.

Alignment of debtor-friendly company business rescue legislation with creditor friendly insolvency legislation

To make Chapter 6 work, legal convergence and uniformity are required between the debtor-friendly Companies Act and creditor-friendly insolvency legislation.

An effective court system, including a specialised statutory tribunal for business rescue

Experience commercial judges must be available at short notice.

The normal court system is unlikely to be appropriate for business rescue. What is required is a specialised statutory tribunal in which creditors will have confidence.

Availability of experienced commercial judges

Experience commercial judges must be available at short notice.

Regulation of supervisors - ABASA

ABASA - Association of Business Administrators of South Africa was established as in industry proposed business rescue regulatory body in 2004, and has applied to government for official recognition.

ABASA has set appropriate admission criteria for supervisors as discussed under "Need for regulation of supervisors" on the business rescue legislation page, and will ensure that its members carry out their duties in a professional and ethical manner.

Effective business rescue industry support

Organised turnaround industry - TMA-SA for networking, knowledge, education and promotion

The Turnaround Management Association - Southern Africa (TMA-SA) promotes the turnaround industry, and serves as forum for turnaround professionals of all disciplines to associate for purposes of information exchange, networking, education, and raising standards in the turnaround industry.

The members of TMA-SA are active in management correction, informal creditor workout and business rescue (the first 3 stages timeline of financial distress).

TMA-SA has accepted the challenge to make new business rescue legislation work in South Africa. 

TMA-SA will participate in the consultation with government about the draft business rescue legislation, will educate its members about business rescue and will collect and disseminate information about business rescue.

Education of supervisors

Based on the Certified Turnaround Practitioner example, a supervisor should pass an exam consisting of 3 modules:

  • Turnaround management.
  • Financial, managerial and tax accounting.
  • Insolvency and business rescue law.

As discussed as discussed under "Supervisor exam " on the business rescue legislation page, TMA-SA can assist in setting up such an exam, either as a customised South African version of the international CTP exam, or as a home-grown initiative.

Turnaround finance

Companies entering business rescue proceedings do so because they have or will run out of cash.

Post-commencement finance as envisaged in Section 138 of the Companies Bill, 2007 is unlikely to be of much practical value in free fall business rescue, since by that time the distressed company will invariably already be without borrowing capacity.

Even troubled companies which enter pre-packaged business rescue early enough in the process may find it hard to find lenders.

Accordingly, there remains a strong need for a more active turnaround private equity industry in South Africa that not only invests in underperforming businesses and businesses requiring financial restructuring, but also invests in distressed businesses too.

It is envisaged that the business rescue legislation will stimulate the market for distressed situation private equity.

Government can also play a role through the establishment of a turnaround fund via the National Empowerment Fund for instance.

Business rescue scorecard

Whilst it is very difficult to find statistics in this regard, the success rate of business rescue overseas is lower than may be expected - less than 47% in the UK for instance (see business rescue).

Whilst its new business rescue legislation will make a major impact on successfully rescuing troubled companies, South Africa runs the risk of creating false expectations of new business rescue legislation being a panacea for its liquidation problems.

Moreover, there is a need to learn more about business rescue outcomes to enable lawmakers and turnaround practitioners to devise new and improved approaches and methodologies to increase the success rate of business rescue in future.

We therefore call for a scorecard to measure and the track the success of all business rescue attempts:

  • Number and turnover of businesses that enter and survive business rescue.
  • Percentage of jobs retained as a result of business rescue.
  • Claim holder recovery as a result of business rescue.
  • Cost of business rescue.
  • Duration of business rescue.
  • Business rescue success outcome – turnaround or sale.
  • Pre-packaged or free fall.

For more information read Key success factors for business rescue in South Africa.

This turnaround news flash was brought to you by CRS Turnaround - turnaround management consulting firm rescuing distressed companies and improving results of underperforming companies in South Africa.

Friday, March 30, 2007

Draft business rescue legislation - main features

Main features of draft business rescue provisions as contained in Chapter 6 of the Companies Bill, 2007

Business rescue means proceedings to facilitate the rehabilitation by its management of a company that is insolvent, or may imminently become insolvent - section 130(1)(b).

  • Largely self-administered by the company.
  • Management of the affairs, business and property of the company is under independent supervision, within constraints - section 130(1)(b)(i).
  • Subject to court intervention at any time on application by any of the stakeholders.
  • A temporary moratorium on the rights of claimants against the company or in respect of property in its possession - section 130(1)(b)(ii).
  • The development and implementation of a plan to rescue the company through restructuring of its affairs, business, property, debt and other liabilities, and equities - section 130(1)(b)(iii).


  • Very low hurdle rate for the debtor to commence business rescue proceedings:
    • Ordinary resolution as opposed to a special resolution in order to enter the procedure (as opposed to a special resolution required for winding-up) or a decision by the board of the company – section 132(1).
  • While it is relatively easy for a company to enter the business rescue proceeding, the hurdle that an affected person (shareholder, creditor, trade union or unrepresented employee) has to clear in order to have the proceeding set aside is extremely high:
    • A court application is required, which involves high costs and other risks – section 133(1).
    • The business rescue proceeding will only be set aside if there is “overwhelming evidence” supporting the applicant’s allegation that there is no reasonable prospect of rescuing the company – section 133(5)(a).
  • The shareholders or board can appoint the supervisor in charge of business rescue – section 132(3)(b):
    • Difficult for creditors to overturn this appointment in court – section 133(1)(b).
    • The company and the supervisor being able to enter an agreement regarding the remuneration payable to the supervisor – section 146.
    • Simple majority required by the supervisor to obtain authorisation to do most things.
    • The supervisor may authorise the company to borrow in priority of existing obligations in order to fund ongoing business activities - section 143(1)(c).
    • Committee of employees, or of creditors that may consult with the supervisor in charge of business rescue about any matter relating to the business rescue proceedings, but that may not direct or instruct the supervisor – section 152.
    • The simple majority required in order to accept a business rescue plan – section 155.
  • Directors and management continue to perform and exercise their functions and powers (albeit that the supervisor can remove management from office) – section 143.
  • Suppliers are to continue to supply on the same terms and conditions - section 139.

Ranking of claims

The supervisor's remuneration and other business rescue cost rank highest, then unpaid monies owed to employees in the order in which they were occurred, then secured claims, then post-commencement finance in the order in which they were occurred, then unsecured claims - section 138.   (Does Sars now become a unsecured rather than a preferred creditor?).


Although a detailed timeline is set, the time limit on the duration of business rescue can be extended through court or creditor approval - section 135.


  • Recognition of the interests of shareholders, creditors and employees, and provision for their respective participation in the development and approval of a business rescue plan:
    • Creditors, funders, trade unions, shareholders and employees must elect a representative forum, which must then decide whether a business rescue plan presented by the supervisor is viable.
  • Protection of the interests of workers by:
    • Recognising them as creditors of the company with a voting interest to the extent of any unpaid remuneration,
    • Requiring consultation with them in the development of the business rescue plan,
    • Permitting them an opportunity to address creditors before a vote on the plan, and
    • According them, as a group, the right to buy out any dissenting creditor who has voted against approving a rescue plan.
    • Ranking employee claims, in the event of a liquidation, highest after the costs of business rescue, above secured claims, post-commencement finance, and unsecured claims - section 138.
    • Not allowing retrenchment - section 139.

For more information read Business rescue.

The implications of and key success factors for successful business rescue in South Africa will be addressed in blogs to follow.

This turnaround news flash was brought to you by CRS Turnaround - turnaround management consulting firm rescuing distressed companies and improving results of underperforming companies in South Africa.