Transcript Document

GOING OUT OF BUSINESS OR
GETTING RESCUED
WHAT ARE THE ODDS?
23 October 2013
LSSA
Points to Ponder
• Where does South Africa come from?
• Interim Conditional Licenses
• The number of accredited business rescue practitioners
• What have we seen happening?
• Rescues Terminated
• Future Plans
LEGISLATION
• Chapter six of Companies Act, the Act (Act
No 71of 2008) and the
• Companies Amendment Act (Act No 3 of
2011) and the
• Regulations as published 26 April 2011
Where does South Africa come
from?
• Previously applicable Acts only provided for
liquidation/judicial management regime
• BR as remedy became available from 1 May 2011
• What is the objective ?
Business rescue aims at avoiding liquidations and
job losses by providing businesses with protection
against creditors who may want to file for
liquidation or take other legal action. It is an
opportunity to re-organise and restructure
distressed but viable companies to the benefit of
all affected parties.
4
EXPECTATIONS
• In March 2011 Ms Fubbs the Chairperson of the PC on
Trade and Industry said “ For the first time in SA
companies whether small medium or large will, with their
employees their creditors and their shareholders all
benefit from a balanced fair and reasonable approach.
• She was talking about Chapter six the Business Rescue
provisions. She could not have known just how
successful the Chapter would have been implemented
merely a year into the implementation thereof.
EXPECTATIONS
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Politicians
Banks
Trade Unions
Judges
Potential Business Rescue Practitioners
Business in Financial Distress
Labour
Affected parties (Shareholders creditors employees)
Part B
(Purpose and application)
The purposes of this Act are to• 7(k) provide for the efficient rescue and recovery of
in a manner
that balances the rights and
interests of all relevant
stakeholders
financially distressed companies,
MANDATE and PURPOSE of ACT
- Chapter 6 of the Act 2008 introduces principles
relating to corporate rescues which brings us into
line with international principles of turnarounds
and corporate rescue as they exist in foreign
jurisdictions.
- It is envisaged that the functions of the CIPC will
stretch further than the administration and filing
of Notices to start and end BR processes.
- The success of BR WILL be, closely monitored to
ensure that SA sets an example not only Nationally
but also Internationally.
FUNCTIONS
• Manage and record the filing of relevant notices as prescribed in the
Act.
• The accreditation of professional bodies
and
• Licensing of individuals that meet the
criteria of the Act
• Monitor patterns of compliance
• Promotion of BR provisions of the Act
• Advisory role and raise awareness
Procedures for financially
distressed companies
• Business rescue proceedings begin when the Board passes a
resolution that the company voluntarily begin Business rescue
proceedings, (section 129) or an affected person (shareholder,
creditor, employee or organised labour], section 131 applies to
court for BR proceedings – Form CoR 123.1
• No liquidation proceedings must have commenced against the
company
• Within five days after passing resolution, company must
appoint a Business rescue practitioner and publish and file the
notice as prescribed in the regulations on - Form CoR 123.2
within two days with the CIPC and inform all affected parties of
the appointment
Documents to be filed with CIPC
• In support of this (CoR 123.1) Notice, the company has
attached a
– sworn statement of the relevant facts upon which
the resolution was founded by a director
representing the Board and
– a copy of the resolution.
In Support of CIPC Administrative process:
- Letter from the distressed company on its letterhead in
which they nominate a practitioner with reasons for his
nomination. No prior involvement with the company
(not conflicted). CIPC will verify his or her application
to make sure that the requirements of section 138 are
met.
- Letter on the letterhead from the recommended
practitioner in which he or she declares that he is not
disqualified or has a conflict of interest .
- Independent from the company.
- Sufficient capacity exists to undertake the project
STRICK TIME LIMITS
• It was resolved that an extension of time limits will be granted in
general for an additional 5 days, as prescribed under Regulation
166 (1) and (2) of the Companies Regulations published on 26
April 2011,
• in which “ . . . a senior officer may generally extend a time limit
set by the Act to accommodate administrative capacity and in
the interest of efficiency and equality of access.”
Section 129
(3) Within five business days after a company has
adopted and filed a resolution ….. or such longer
time as the Commission, on application by the
company, may allow, the company must—
(a)publish a notice of the resolution, and its
effective date, in the prescribed manner to every
affected person …. ; and
(b) appoint a business rescue practitioner who
satisfies the
requirements of section 138
(4) After appointing a practitioner …. a company must:
- file a notice of the appointment of a practitioner
within two
business days; and
- publish a copy of the notice of appointment to
each affected person within five business days
(5) If a company fails to comply with … subsection (3)
or (4) its resolution to begin business rescue
proceedings lapses and is a nullity;
Age of businesses under rescue proceedings
156
160
140
120
100
89
< 5 yrs
Between 5 and 10 yrs
80
>10 yrs
60
49
42
38
40
25
20
9
8
0
Close Corporations
Private Companies
Public Companies
6
Notices of Beginning Business Rescue- Apr 2012- March 2013
Apr-12
May-12
70
63
60
54
50
59
56
50
47
43
20
Jul-12
Aug-12
40
30
Jun-12
Sep-12
29
Oct-12
24
20
18
14
10
Nov-12
Dec-12
Jan-13
0
1
Feb-13
Mar-13
Numbers
ALL BANKRUPTCIES
LIQUIDATIONS
INSOLVENCIES
2010
2011
2012
2010
2011
2012
2010
2011
2012
10,719
9,958
8,746
5,001
4,062
3,679
5,718
5,896
5,067
12000
10000
10719
9958
8746
8000
6000
5718
5001
4062
5896
5067
3679
4000
2000
0
Business Rescue during 2012
Total 498; 104 liquidations; 162 implementing business rescue plan
17
Wholesale and retail services May 2011 - March 2012
34
35
30
25
20
20
16
15
11
10
9
8
6
5
1
2
1
1
2
3
0
0
Motor vehicles
Wholesale and
commission
trade
General trade
Medical
practioners and
pharmaceutical
Close corporations
Liquor
Companies
Computers and
software
Other business
activities
Services May 2011 - March 2012
12
11
10
8
7
7
6
4
4
3
2
2
2
1
0
0
1
0
0
Hotel and
restaurants
Import and export
Transport
Auxiliary transport,
travel agencies
Close corporations
Companies
Post and telecomm
Other services
activities
Investments May 2011 - March 2012
120
104
100
80
55
60
40
20
14
1
0
1
0
Fin Intermediation insurance, real
estate
Fin intermediation except insurance
and pension funding
Close corporations
Companies
Auxiliary fin intermediation
Rescues terminated
• In August 2012 an audit was done by sending a
questionnaire to all practitioners and requesting
information on progress.
• 64 successes and 45 liquidations were reported.
• The success rate is approximately 55% of all
businesses that have concluded their rescue
operations. Real rate closer 12-15% taking into
account the pending rescues.
• Average turn around reported is 5.6 months.
Total BR May 2011-March 2012
25%
Total responses received
No response received
75%
Web Survey on Employment
• Survey had as its main focus, employment,
• Requested the conditionally licensed practitioners to
complete a few questions
• Although it has not concluded yet, I can report on
an interim basis as follows:
• Of the 126 conditionally licensed practitioners at the
time only a quarter have responded (31).
• They reported on the jobs saved in 120 businesses
that they were appointed in.
Recently concluded Web Survey
• The number of jobs at the start of the projects were
reported to have been 5680 and at the end of the rescues
4256.
• Only 25% of the jobs were lost.
• The rescue effectively saved 75% of the jobs, where in
the case of a liquidation all jobs most probably would
have been lost.
• If we look at the number of dependents to a full time job
which is commonly calculated to be at least six (6) the
effect is more than 30 000 lives, that have been
effected positively.
• Many of the rescues reported on have not reached
substantial implementation of the business rescue plan
yet.
What have we seen happening ?
• 1155 efforts to start BR (including Applications made
to Court)
• Some formal training intervention have been
developed (UNISA/LSSA and CE at UP)
• No formal structures for Post Commencement
Finance yet (PCF)
• High percentage does not get BR plans adopted
and end in court for liquidation
• Scepticisms from the formal credit sector (Banks and
SARS)
2011 stats
• Nullities = 13.25%
• Liquidations = 7.69
• Non compliance = 44% **
• Implement = 26.5
• Court Application 20%
• ** = non reports, disappearances, no contact,
2011
13.25% Nullety
7.95% Liq
44.70% Non Compl
26.49% Implement
2012
16.06%
Nullity
80
20.88%
Liquidation
104
28.71%
Non Compliance
143
32.53%
Implementing
BRP
162
1.81%
Invalid filing
9
1.000
498
2012 Statistics on BR Successes and Implementation
2%
16%
16.10% Nullity
32%
20.72% Liquidation
28.77% Non Compliance
21%
32.60% Implementing BRP
29%
1.81% Invalid filing
BRs Status
report-30/8/13
1
2
100%
12
14
15
90%
80%
30
19
70%
18
20
17
51
90
6%
10%
8
2
3
8%
8%
Other
Creditor Liquidated
50%
40%
56
39%
1/5
42
Return in progress
Co
20
12
%
4
0%
m
bi
ne
d
10%
47
20
13
20%
No plan - liquadated
Not adopted
30%
20
11
Percentage
60%
Year
Rescue in progress
Substantially
implemented
SPLIT BETWEEN RESOLUTIONS AND COURT APPLICATION
Applications to Court
131 (81)
81
18%
Section 129 Notices
filed (375)
375
82%
Split between Court Applications and Resolutions 2012
2013
Company
resolutions ,
421
450
400
350
300
250
200
150
100
50
Court
Appliactaions ,
46
0
Court Appliactaions
Company resolutions
Type of businesses, filing for rescue 2012 /2013
33. 48% Cl os e Cor por at i ons
63. 73% P r i v at e Compani es
2. 15% P ubl i c Compani es
0. 64% Not f or P r of i t
Type of business placed in Rescue in April May June 2013
2%
44%
Private companies (71)
Close corporations (57)
54%
Public companies (2)
67
70
60
53
50
40
Court Appliactions (8)
30
Company Resolutions (122)
20
10
4
4
(PTY) LTD
CC
2
0
Ltd
Notices of Beginning Rescue Filed (sec 129) and court applications April May June
2013
140
130
120
100
80
60
Notices of Beginning Rescue
Filed (sec 129) and court
applications
50
41
39
40
20
0
April
May
June
Total Filngs
What have we done
• 2BRP Workshops
• 3 Workshops with the formal
banking sector
• Discussions with Unions
representatives
• Training and Monitoring
• Discussions with existing
Industry Associations
• Compliance exercises
• SARS
In Process
•
•
•
•
•
Evaluation
Licensing
Scenario monitoring
Specialist Committee on BR
Discussions with the Judiciary
END GOAL
Competency Framework
DO ALL ANSWERS LIE IN THE SKILL SET OF THE BUSINESS
RESCUE PRACTITIONER?
What did CIPC get?
Definition
“business rescue practitioner”
means a person appointed, or two or more persons appointed jointly, to
oversee a company during business rescue proceedings
Tasks
Facilitate the rehabilitation of a company by
(i) the temporary supervision of the company, and of the management of its
affairs, business and property;
(ii) a temporary moratorium on the rights of claimants against the company or in
respect of property in its possession; and
(iii) the development and implementation, if approved, of a plan to rescue the
company by restructuring its affairs, business, property, debt and other
liabilities, and equity in a manner that maximises the likelihood of the
company continuing in existence on a solvent basis or,
IF it is not possible for the company to so continue in existence, results
in a better return for the company’s creditors or shareholders than would result
from the immediate liquidation of the company
Guidance on Practitioners
• 138. Qualifications of practitioners
• Accreditation by Commission of legal, accounting or business
management profession or has been
• (b) has been licensed as such by the Commission in terms of subsection
(2);
– (2) For the purposes of subsection (1) (a) (ii), the Commission may
license any qualified person to practice in terms of this Chapter
and may suspend or withdraw any such licence in the prescribed
manner.
– Guidelines:
(c) is not subject to an order of probation in terms of section 162
(d) would not be disqualified from acting as a director of the
company in terms of section 69 (8);
does not have any other relationship with the company such as
would lead a reasonable and informed third party to conclude
that the integrity, impartiality or objectivity of that person is
compromised by that relationship; and(f) is not related to a person
who has a relationship contemplated in paragraph (d).
What can CIPC do?
• CIPC can advise:
• 138 (3) The Minister to make regulations prescribing—
• (a) standards and procedures to be followed by the
Commission in carrying out its licensing functions and
powers in terms of this section; and
• (b) minimum qualifications for a person to practice
as a business rescue practitioner, including different
minimum qualifications for different categories of
companies.
• [S. 138 substituted by s. 88 of Act No. 3 of 2011.]
LICENSING
Licensing of Business Rescue Practitioner
• Licensed by the Commission, or
The Commission after receiving an application must either:
1.Issue a license as applied for in Form CoR 126.1
2.Issue a Conditional license on terms that are reasonable
3.Refuse the license
Categories of Practitioners:
1.Senior – 10 years or more
2.Experienced – 5 years or more
3.Junior – Less than 5 years
Joint appointments are allowed.
REQUIREMENTS FOR
APPLICATION FOR A
CONDITIONAL LICENSE
• Complete Form CoR 126.1 (Applications for
licenses to serve as a business rescue)
• Customer Code must be obtained (registration as
customer with CIPC) Payment of R500 fee
• A comprehensive resume containing full and
detailed particulars of the applicant’s history and
relevant practical experience in business turn
around practice
• Motivation to substantiate the specific group or
category that the applicant wishes to be licensed
for clearly demonstrating relevant experience
Can the purpose and objective
of this Act be met?
in a manner that balances the
rights and interests of all relevant
stakeholders
The Number of conditionally licensed
business rescue practitioners
• The CIPC has conditionally licensed 165 business rescue
practitioners with interim conditional licenses,
• These practitioners have been taking care of 1155 end
Sep 2013 businesses that has opted to go into business
rescue
• Practitioners receive a license for each of the ventures
they are taking care of.
• Once the project concludes the appointment and
license comes to an end.
• When the practitioner is nominated and wants to accept
a new appointment a new license is issued.
• The CIPC does not automatically license the practitioner
again, they must be compliant with requirements of the
Act in all existing ventures.
Practitioners in Provinces
2% 5%
1%
3%1%
E Cape (8)
Gauteng (86)
21%
KZN (21)
W Cape (33)
North West (5)
54%
13%
Limpopo (2)
Mpumalamga (2)
Free State (3)
Experience of Business Rescue
Practitioners
9%
34%
57%
Junior (15)
Senior (91)
Experienced (54)
Professions represented
41, 25%
63, 38%
Accountants (41)
Attorneys (43)
CA (18)
Business Consultants (63)
18, 11%
43, 26%
Practitioners Licensed p/y
23%
28%
49%
2011 (46)
2012 (78)
2013 (36)
March 2012 to April 2013
Number of rescues/BRP
70
42
22
22
ot
he
r
oi
nt
m
en
ts
Ap
p
nt
al
Jo
i
To
t
BR
Ps
in
JA
in
an
d
JA
on
ly
>2
0
BR
Ps
to
11
to
6
Number of rescues
1
10
5
2
12
11
5
20
7
4
3
2
12
1
80
70
60
50
40
30
20
10
0
Single vs Joint Split
300
250
N
u
m
b
e
r
200
25
10
150
100
Joi nt
225
24
179
50
81
0
2011
2012
Year of rescues
2013
Si ngl e
BRP must start saying NO
Rescues alledgedly refused
140
133
133
120
100
Axis Title
90
Rescues refused
80
60
40
20
0
2011
2012
2013
Future Plans
• Must include a way to address serious competency/skills
challenges.
• Compulsory test by “expert” could be BRP, to determine
viability rescue venture before accepting new rescue project.
• Pairing on BRP’s
• Restriction of number of ventures that BPR are allowed to
accept
• Firm action against culprits found to abuse the rescue process,
could include litigation to claim back fees and damages
• Blacklist all that was found guilty
• Disciplinary review committee through peers review system
• Exploring the possibility of CIPC assisting unsophisticated
affected parties with funds to litigate against willfully malicious
and grossly negligent BRP’s
Education Framework to determine the skills set of a rescue
practitioner
• Implementation of an Accreditation/Competency Framework
• Creditor education
• Creating awareness in the business fraternity
THANK YOU
CONTACT DETAILS:
Contact Details
Vuyani Nkohla
012 394 5012
Donovan van Schalkwyk
012 394 1538