Finance Update
Corporate restructuring – a new way of doing things
Richard Buchholz, Director, Restructuring Advisory Business, KPMG
One of the more exciting aspects of the recently released Companies Bill 2007, was the introduction, in Chapter 6, of the new ‘Business Rescue’ Legislation.
Whilst the draft Bill was open for public commentary until 31st March 2007, and hence there are likely to be changes to its contents, the broad principles of business rescue legislation are likely to remain intact. The most important of these are:
- the liquidations regime will become more ‘debtor-friendly’. This means that a distressed company will have more control over its own destiny than it would under existing insolvency legislation;
- the concept of a ‘Supervisor’, appointed to oversee a company’s business rescue proceedings, including assistance in the development of a business rescue plan;
- enhanced rights for the employees of a distressed company, once business rescue proceedings have commenced.
It is too early to comment on specific aspects of the Bill but, whatever shape the new legislation takes, it is clear that the legislative emphasis is swinging dramatically away from the usually terminal outcome caused by liquidation proceedings, under the current legal framework, toward a more proactive regime of distressed business ‘rescue’, in a justified effort to avoid the pains and cost of liquidation. These concepts should be welcomed, as their successful implementation would lead to a better record of distressed company turnaround and survival, the obvious and desirable protection of jobs, and a concomitant reduction in often unnecessary and costly company liquidations.
A likely side-effect of the new legislation will be a proliferation of practitioners who will, no doubt, tout their skills as ‘Supervisors’. It is hoped that there will be a process of accreditation for such practitioners, perhaps under a supervisory body such as the Turnaround Management Association of Southern Africa (TMA), to maintain credibility in the supervisors, unlike the liquidation profession which is not regulated.
Whatever happens, most certainly, both corporate and banking behaviour will change in the future, and all stakeholders will become more amenable to the currently stigmatised practice of seeking early external advice in a distressed situation. In particular, it will remain in all the parties’ best interests to try to avoid the more formal environment of ‘business rescue proceedings’ (as the Bill terms it). Early diagnostic and preventative actions by businesses are usually relatively speedy, unobtrusive and painless, with often only ‘dented pride’ being the side-effect of such interventions. Usually, with early and independent intervention, businesses often require no more than improved discipline over their cash management and working capital management processes.
Cost of independent intervention is often a concern raised by business in defence of such intervention. A basic but meaningful review of a distressed business, division, subsidiary or investment can be tailored to fit into one week, at a fixed cost to the business and, if subsequent extended interventions are required, these are normally tailored to suit the client’s needs, with weekly milestones to keep the costs down. The process is managed so that there is minimal disruption to the business, and limited knowledge of the purpose of the intervention by staff, both within the organisation and externally.
It is important for all stakeholders to act early on any signs of distress – it is much easier to ‘tweak’ things early on, than to have to bite a BIG bullet when things are left too late!
Tel: (011) 647-6204
Email: richard.buchholz@kpmg.co.za
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