Business rescue discussed at Werksmans seminar

April 11th, 2019
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By Kgomotso Ramotsho

Director and Head of Insolvency, Business Rescue and Restructuring Practice at Werksmans Attorneys, Doctor Eric Levenstein, was the facilitator at the Werksmans Business Rescue Seminar that was held in Johannesburg on 14 March.

Werksmans Attorneys held a Business Rescue Seminar on 14 March in Johannesburg. Facilitator of the discussion, Director and Head of Insolvency, Business Rescue and Restructuring Practice at Werksmans Attorneys, Doctor Eric Levenstein, said the aim of the seminar was to try and highlight the way business rescue works and how a business should move from a financially distressed company to a company that goes into the business rescue process.

Advocate and Co-Chief Executive Officer at FluidRock Governance Group, Annamarie van der Merwe, said there is a lot of emotional baggage that goes on behind the scenes when a company goes through business rescue. She added that some directors go into a state of denial and push back when in financial distress. Director at Werksmans Attorneys, Danny Andropoulos, pointed out the state of denial that directors go through cannot be avoided. He said it takes courage for some directors to recognise that they are in trouble. However, he added that often when they seek advice, it is too late. He pointed out that corporate South Africa is under a lot of stress at the moment and more clients are now seeking council.

Advocate and Co-Chief Executive Officer at FluidRock Governance Group, Annamarie van der Merwe, was a panellist at Werksmans Business Rescue Seminar.

Director at Werksmans Attorneys, Karabo Motshwane, pointed out that s 128 of the Companies Act 71 of 2008 (the Companies Act) requires directors to focus six months ahead. He said directors are supposed to think about whether they will be able to pay debts, or whether in six months they will likely be insolvent.

Mr Motshwane added that if directors realise that in six months they will not be able to pay their debt, according to the Companies Act, directors and the board are obliged to pass a s 129 notice ‘suicide note’. He said it states that if a company is in financial distress, but does not pass a resolution, that company must publish a notice with reasons why it is not doing so. He added that if directors do not hand out a notice, there are consequences involved and the company may then be deemed to have been trading recklessly. He noted that s 218 of the Companies Act, says that directors may be held liable for any loss at any point.

Director at Werksmans Attorneys, Karabo Motshwane, spoke about the Companies Act 71 of 2008 with regards to business rescue.

Mr Motshwane said that he realised that directors misread s 129 of the Companies Act. He added that s 129(7) is not an act of insolvency. He pointed out that in the Companies Act it states that if directors have reasonable belief that they may not be able to pay their debts in six months, they cannot be taken to task, there cannot be litigation for liquidation.

Mr Andropoulos spoke about his experience with advising directors in business rescue. He said it is difficult to guide lenders who provide finance to a particular corporate, to a logical body that is able to speak in a unified voice and make a coherent decision in a short space of time in order to achieve a positive outcome. He added that the first reaction one gets is outrage because of ‘incorrect information’ given by the board to the body of lenders. He pointed out that debt and risk profile of each lender is different, and reactions are fundamentally different. He said the challenge is how to best have lenders recognise a common interest.

Senior Business Rescue Practitioner, Peter van den Steen, spoke at the seminar.

Senior Business Rescue Practitioner, Peter van den Steen, added that there are sometimes desperate creditors. He said syndicated lenders might have different agendas. He pointed out that it would be difficult to herd lenders together while they might be a lender who is rouge and wants to hold their position. He added that there is difficulty in getting people to start looking at a solution jointly regardless of whether there is a disproportion in terms of exposure.

Mr van den Steen said with regards to the pre-assessment stage when a company is going through business rescue, it would be an absolute luxury that one would find a board that can see trouble on the horizon and understand that they are responsible to act in the best interest of the company. He added that to have a pre-assessment is a good idea and it can sometimes lead to a framework of what the plan of action is if a company goes through business rescue.

Kgomotso Ramotsho Cert Journ (Boston) Cert Photography (Vega) is the news reporter at De Rebus.