BDO South Africa COO of Business Restructuring Services and former CFO Buhle Hanise provides six reasons why other finance executives should embrace business rescue as a tool to secure the future of a struggling organisation.
In the intricate world of corporate finance, CFOs find themselves at a critical juncture each year-end, tasked with reassessing the viability of their company as a going concern. This assessment, pivotal for the company’s future, is not merely an internal exercise; it requires confirmation from auditors as an integral part of the audit opinion. The litmus test emerges when signs of insolvency become apparent – where liabilities, whether current or non-current, surpass the company’s assets, or liquidity concerns manifest in negative cash flows.
This juncture, fraught with financial complexities, is where the prospect of business rescue comes into play. Contrary to the apprehension that often accompanies this term, business rescue, underpinned by an independent business review, serves as a proactive measure during the early stages of distress, before the ominous threat of liquidation looms large. In navigating this terrain, CFOs and business leaders must recognise that business rescue, inclusive of schemes of arrangement and creditors’ compromises as outlined in Section 155 of the Companies Act, can be a strategic and constructive path forward.
Below, are six key considerations when it comes to embracing the concept of business rescue and why CFOs shouldn’t fear it.
1. Helps avoid liquidation
The major benefit of business rescue is that it helps a business avoid liquidation. This in turn saves employees from losing their jobs, and creditors from going unpaid. By opting for business rescue, a company can signal its commitment to recovery and streamline and restructure its operations. The process is cost-effective and keeps the doors open for a brighter future.
2. Assists with creditors
When a business enters the independent business review stage, it signifies that there is still hope for a turnaround. Business rescue can create schemes of arrangements with creditors, helping to reduce costs and navigate industry challenges effectively. This collaborative approach can lead to mutually beneficial solutions.
3. A holistic approach to solving problems
Business restructuring or review (which includes business rescue) requires a comprehensive advisory team that can provide internal support for various aspects of the restructuring plan. These advisors should be seen as an extension of the business, working to manage costs, improve profitability, and ensure shareholders receive dividends. Business rescue is not only about working solely for the interests of creditors; it’s about preserving the long-term interests of the company.
4. Find a commercial solution
Professionals experienced in turning around distressed businesses are adept at identifying commercial solutions. Business rescue practitioners take full management control of the enterprise, acting within specific mandates and timeframes. This approach ensures that the company’s operations are aligned with its recovery strategy.
5. It takes time
In a world where instant gratification is often sought, business rescue reminds us that patience is key. Restructuring a company takes time, with most businesses showing signs of recovery only after 18 months to three years of dedicated effort. Success in business rescue is a journey that requires perseverance.
Business rescue is a powerful tool for companies facing adversity. From salvaging value to fostering stakeholder confidence, business rescue holds the potential to transform a dire situation into an opportunity for revitalisation and sustainable growth.
6. Assisted by strategic funding
Business rescue in most cases would require upfront funding to sustain the company’s operations during the recovery process. While it is not a guaranteed fix, securing funding can be made easier by finding a strategic partner with the necessary resources. When the right investor comes on board, it can significantly enhance the chances of success.
Overall, business rescue should not be feared, but rather embraced as a tool to protect the interests of all stakeholders in a financially distressed company. It can help businesses avoid liquidation, work collaboratively with creditors, and provide a holistic solution to their problems. It requires patience and upfront funding but has the potential to pave the way for a successful recovery. Business rescue is about securing the future of the company, its employees, and the broader economy, and it should be viewed as a valuable option in times of financial distress.