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CRI Series|Business Rescue: 10 years on… (part 1)

Fasken
Reading Time 3 minute read
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Overview

The Companies and Intellectual Property Commission (CIPC) issued a Business Rescue Proceedings Report (Business Rescue Report) on business rescue proceedings from its inception on 1 May 2011 to 31 December 2021 – a “ten-year” scorecard. It takes stock of how business rescue has developed over that period and whether South Africa has matured as a late entrant into the playing field of corporate restructuring regimes. The story must be told over the “ten-year” period and dissected into two parts: pre- and post-pandemic. 

Here is a snapshot of the key numbers:

  • 4 215 filings for business rescue over the “ten-year” period, with 680 during the pandemic period
  • 1 658 (39%) business rescue filings remain active – alive – with 489 of those having commenced during the pandemic period
  • 511 (12%) business rescues ended up being unsuccessful – with the enterprises collapsing into liquidation
  • 766* (18%) business rescues ended up being a success story
  • 938 (22%) business rescues were terminated – and it is important to dissect the reason for the termination
  • 310 (8%) business rescues were declared invalid to start with – and could have ended up in liquidation

The pandemic period did not see a huge increase in business rescue in comparison to prior years.  South Africa has seen a consistent number of over 250 filings per year.  According to the Business Rescue Report the 4215 filings include:

  • 97 public entities (2%)
  • 2 893 private entities (69%)
  • 1 201 close corporations (29%)
  • 3 state-owned corporations (0%)

The majority of the enterprises seeking business rescue protection are based in Gauteng (1 901), with Western Cape (565) falling second.

Out of the 938 business rescues terminated, 517 (over 50%) business rescues were terminated because the enterprise was not financially distressed.  This means that the enterprise was returned to the control of the board of directors. Those enterprises were able to continue operating. These should be added as success stories as their improved financial status could be due to several reasons, including the intervention of the business rescue practitioner. Based on the *number referenced above this would increase the business rescue success story from 766 to 1,383 (33%).  Is a 33% success rate a “success story”?

The average “age” of the 766 companies that underwent successful business rescue has been 18.04 months, with 646 taking 6 months or longer before they reach substantial implementation and the “success story”.

Of the 938 businesses terminated, 606 were terminated after 6 months, at an average of 14.48 months from the beginning to the end of the termination process.

Next we turn to the industries most affected by business rescue filings:

  • wholesale and related trade with 403 filings
  • manufacturing with 292 filings
  • construction with 269 filings
  • real estate with 220 filings
  • agriculture, forestry and fishing with 153 filings
  • transportation and storage with 145 filings
  • mining with 124 filings
  • accommodation with 121 filings

Regrettably, the statistics have a large number as “not provided” or under “other activities”. We would strongly recommend that this element of the statistics be addressed so that we get a clearer picture.

What do we glean from these statistics?

Look out for Part 2 of this CRI Series in which we will unpack these statistics and the future of restructuring as a critical tool for business given market volatility likely in the future.

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