The turnaround industry and its business rescue industry component in South Africa

Turnaround and business rescue industries in South Africa

Turnaround and the business rescue turnaround setting

A turnaround refers to recovery from an existence-threatening decline. Turnaround takes place in two settings.

Firstly, turnaround takes place as an informal credit workouts outside of the legislative framework. Workout has been with us in South Africa for decades.

Workouts will still flourish despite the introduction of new business rescue legislation on 1 May 2011. The overseas experience is that especially larger companies, and their banks, prefer to have the turnaround conducted informally to avoid the reputational risk (the stigma of bankruptcy) of entering Chapter 6 business rescue. This is especially true if economic viability is more apparent and financial distress has not reached crisis levels.

Secondly, turnaround takes place within a legislative framework. In the past, SA had Judicial Management, which was a complete and utter failure, and compromises with creditors. On 1 May 2011 these were replaced by the business rescue provisions in Chapter 6 of the Companies Act No. 71 of 2009, the Companies Amendment Act No. 3 of 2011, and the Companies Regulations, 2011.

Companies and close corporations, who believe that the legal protection offered by business rescue outweighs the reputational risk of business rescue, will follow this route. It can be expected that Chapter 6 business rescues will be mostly smaller companies and close corporations, larger companies whose financial problems are already well known by suppliers, customers and staff i.e. the reputational damage is already done, and companies and close corporations in serious financial distress with economic viability that is not that apparent up front.

The legal fraternity, which don't really have a market in workouts, stand to gain from business rescue with its high court and attorney interaction, It can be expected that the legal fraternity will use its influence to make business rescue rather than workout happen.

What is happening in the turnaround and business rescue industries

This section provides turnaround and more specifically, business rescue industry news, events, liquidation statistics and Turnaround Market Watch in South Africa.

International organised turnaround industry

The international organised turnaround industry is discussed in terms of INSOL International with 9 000 members, and the Turnaround Management Association (TMA), a Member Organisation of INSOL International with over 9 000 members.

Local organised turnaround industry

The South African organised turnaround industry is discussed in terms of the Turnaround Management Association (TMA-SA), an international licensee of TMA, with 100 members.

Also discussed is the Association of Insolvency Practitioners of South Africa (AIPSA) with 350 members, which is planning to change its name to the South African Restructuring and Insolvency Practitioners Association (SARIPA) and to add restructuring and turnaround to its insolvency activities.

The USAID Financial Sector Program policy reform initiative is currently under way to assist the authorities in connection with amendments to key areas of the financial sector, including the Company Act, National Credit Act; and Insolvency Act.

The ultimate aim of the project will be to prepare a mapping of the current legal frameworks pertaining to business rescue, liquidation, and insolvency, with a view to developing policy recommendations to strengthen these systems.

Gerald Meyerman and Gordon Johnson provided sterling support to the dti in finalising the new business rescue legislation and regulations. Gordon took over the reigns from Gerald in June 2011. We wish him the best of luck in assisting CIPC with the important task of operationalising and improving business rescue legislation, and we pledge our full support.

Turnaround certification programme

The Certified Turnaround Practitioner (CTP) qualification will be available in early 2012.

It falls under the auspices of the Certified Turnaround Practitioner Governance Board (CTPGB) of TMA-SA. Candidates must pass exams in turnaround management, accounting/finance and law (Chapter 6) and meet stringent criteria of experience and integrity. Negotiations are underway with CIPC to find alignment between the experience requirements of CIPC for business rescue practitioners, and of the CTP programme for Certified Turnaround Professionals.

With Professor Mervyn King chairing the CTPGB, deputised by Judge Ralph Zulman, a strong Standards Subcommittee and an Education Subcommittee consisting of leading academics in their fields, this certification programme holds lots of promise.

Regulation of business rescue practitioners

Information is provided on the accreditation of professions and licensing of business rescue practitioners by the Companies and Intellectual Property Commission.