23 October 2013 GOING OUT OF BUSINESS OR GETTING RESCUED WHAT ARE THE ODDS? 23 October 2013 LSSA

Points to Ponder Where does South Africa come from? Interim Conditional Licenses The number of accredited business rescue practitioners What have we seen happening? Rescues Terminated Future Plans

LEGISLATION Chapter six of Companies Act, the Act (Act No 71of 2008) and the Companies Amendment Act (Act No 3 of 2011) and the Regulations as published 26 April 2011

Where does South Africa come from? Previously applicable Acts only provided for liquidation/judicial management regime BR as remedy became available from 1 May 2011 What is the objective ? Business rescue aims at avoiding liquidations and job losses by providing businesses with protection against creditors who may want to file for liquidation or take other legal action. It is an opportunity to re-organise and restructure distressed but viable companies to the benefit of all affected parties.

EXPECTATIONS In March 2011 Ms Fubbs the Chairperson of the PC on Trade and Industry said “ For the first time in SA companies whether small medium or large will, with their employees their creditors and their shareholders all benefit from a balanced fair and reasonable approach. She was talking about Chapter six the Business Rescue provisions. She could not have known just how successful the Chapter would have been implemented merely a year into the implementation thereof.

EXPECTATIONS Politicians Banks Trade Unions Judges Potential Business Rescue Practitioners Business in Financial Distress Labour Affected parties (Shareholders creditors employees)

Part B (Purpose and application) The purposes of this Act are to- 7(k) provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders

MANDATE and PURPOSE of ACT Chapter 6 of the Act 2008 introduces principles relating to corporate rescues which brings us into line with international principles of turnarounds and corporate rescue as they exist in foreign jurisdictions. It is envisaged that the functions of the CIPC will stretch further than the administration and filing of Notices to start and end BR processes. The success of BR WILL be, closely monitored to ensure that SA sets an example not only Nationally but also Internationally. MANDATE and PURPOSE of ACT

The accreditation of professional bodies and FUNCTIONS Manage and record the filing of relevant notices as prescribed in the Act. The accreditation of professional bodies and Licensing of individuals that meet the criteria of the Act Monitor patterns of compliance Promotion of BR provisions of the Act Advisory role and raise awareness

Procedures for financially distressed companies Business rescue proceedings begin when the Board passes a resolution that the company voluntarily begin Business rescue proceedings, (section 129) or an affected person (shareholder, creditor, employee or organised labour], section 131 applies to court for BR proceedings – Form CoR 123.1 No liquidation proceedings must have commenced against the company Within five days after passing resolution, company must appoint a Business rescue practitioner and publish and file the notice as prescribed in the regulations on - Form CoR 123.2 within two days with the CIPC and inform all affected parties of the appointment

Documents to be filed with CIPC In support of this (CoR 123.1) Notice, the company has attached a sworn statement of the relevant facts upon which the resolution was founded by a director representing the Board and a copy of the resolution. In Support of CIPC Administrative process: Letter from the distressed company on its letterhead in which they nominate a practitioner with reasons for his nomination. No prior involvement with the company (not conflicted). CIPC will verify his or her application to make sure that the requirements of section 138 are met. Letter on the letterhead from the recommended practitioner in which he or she declares that he is not disqualified or has a conflict of interest . Independent from the company. Sufficient capacity exists to undertake the project

STRICK TIME LIMITS It was resolved that an extension of time limits will be granted in general for an additional 5 days, as prescribed under Regulation 166 (1) and (2) of the Companies Regulations published on 26 April 2011, in which “ . . . a senior officer may generally extend a time limit set by the Act to accommodate administrative capacity and in the interest of efficiency and equality of access.”

Section 129 (3) Within five business days after a company has adopted and filed a resolution ….. or such longer time as the Commission, on application by the company, may allow, the company must— (a) publish a notice of the resolution, and its effective date, in the prescribed manner to every affected person …. ; and (b) appoint a business rescue practitioner who satisfies the requirements of section 138 After appointing a practitioner …. a company must: - file a notice of the appointment of a practitioner within two business days; and - publish a copy of the notice of appointment to each affected person within five business days (5) If a company fails to comply with … subsection (3) or (4) its resolution to begin business rescue proceedings lapses and is a nullity;

Numbers Business Rescue during 2012 ALL BANKRUPTCIES LIQUIDATIONS INSOLVENCIES 2010 2011 2012 10,719 9,958 8,746 5,001 4,062 3,679 5,718 5,896 5,067 Business Rescue during 2012 Total 498; 104 liquidations; 162 implementing business rescue plan 17

Rescues terminated In August 2012 an audit was done by sending a questionnaire to all practitioners and requesting information on progress. 64 successes and 45 liquidations were reported. The success rate is approximately 55% of all businesses that have concluded their rescue operations. Real rate closer 12-15% taking into account the pending rescues. Average turn around reported is 5.6 months.

Web Survey on Employment Survey had as its main focus, employment,    Requested the conditionally licensed practitioners to complete a few questions   Although it has not concluded yet, I can report on an interim basis as follows: Of the 126 conditionally licensed practitioners at the time only a quarter have responded (31). They reported on the jobs saved in 120 businesses that they were appointed in.

Recently concluded Web Survey The number of jobs at the start of the projects were reported to have been 5680 and at the end of the rescues 4256.  Only 25% of the jobs were lost.  The rescue effectively saved 75% of the jobs,  where  in the case of a liquidation all jobs most probably would have been lost.       If we look at the number of dependents to a full time job which is commonly calculated to be at least  six (6) the effect is more than  30 000  lives,  that have been effected positively. Many of the rescues reported on have not reached substantial implementation of the business rescue plan yet.

What have we seen happening ? 1155 efforts to start BR (including Applications made to Court) Some formal training intervention have been developed (UNISA/LSSA and CE at UP) No formal structures for Post Commencement Finance yet (PCF) High percentage does not get BR plans adopted and end in court for liquidation Scepticisms from the formal credit sector (Banks and SARS)

2011 stats Nullities = 13.25% Liquidations = 7.69 Non compliance = 44% ** Implement = 26.5 Court Application 20% ** = non reports, disappearances, no contact,

2011

2012 16.06% Nullity 80 20.88% Liquidation 104 28.71% Non Compliance 143 32.53% Implementing BRP 162 1.81% Invalid filing 9 1.000   498

2012 Statistics on BR Successes and Implementation

Split between Court Applications and Resolutions 2012 2013

Type of businesses, filing for rescue 2012 /2013

What have we done In Process END GOAL Competency Framework 2BRP Workshops 3 Workshops with the formal banking sector Discussions with Unions representatives Training and Monitoring Discussions with existing Industry Associations Compliance exercises SARS Evaluation Licensing Scenario monitoring Specialist Committee on BR Discussions with the Judiciary END GOAL Competency Framework

DO ALL ANSWERS LIE IN THE SKILL SET OF THE BUSINESS RESCUE PRACTITIONER?

What did CIPC get? Definition “business rescue practitioner” means a person appointed, or two or more persons appointed jointly, to oversee a company during business rescue proceedings Tasks Facilitate the rehabilitation of a company by (i) the temporary supervision of the company, and of the management of its affairs, business and property; (ii) a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and (iii) the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, IF it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company 40

Guidance on Practitioners 138. Qualifications of practitioners Accreditation by Commission of legal, accounting or business management profession or has been (b) has been licensed as such by the Commission in terms of subsection (2); (2) For the purposes of subsection (1) (a) (ii), the Commission may license any qualified person to practice in terms of this Chapter and may suspend or withdraw any such licence in the prescribed manner. Guidelines: (c) is not subject to an order of probation in terms of section 162 (d) would not be disqualified from acting as a director of the company in terms of section 69 (8); does not have any other relationship with the company such as would lead a reasonable and informed third party to conclude that the integrity, impartiality or objectivity of that person is compromised by that relationship; and(f) is not related to a person who has a relationship contemplated in paragraph (d).

What can CIPC do? CIPC can advise: 138 (3) The Minister to make regulations prescribing— (a) standards and procedures to be followed by the Commission in carrying out its licensing functions and powers in terms of this section; and (b) minimum qualifications for a person to practice as a business rescue practitioner, including different minimum qualifications for different categories of companies. [S. 138 substituted by s. 88 of Act No. 3 of 2011.]

LICENSING Licensing of Business Rescue Practitioner Licensed by the Commission, or The Commission after receiving an application must either: Issue a license as applied for in Form CoR 126.1 Issue a Conditional license on terms that are reasonable Refuse the license Categories of Practitioners: Senior – 10 years or more Experienced – 5 years or more Junior – Less than 5 years Joint appointments are allowed.

REQUIREMENTS FOR APPLICATION FOR A CONDITIONAL LICENSE Complete Form CoR 126.1 (Applications for licenses to serve as a business rescue) Customer Code must be obtained (registration as customer with CIPC) Payment of R500 fee A comprehensive resume containing full and detailed particulars of the applicant’s history and relevant practical experience in business turn around practice Motivation to substantiate the specific group or category that the applicant wishes to be licensed for clearly demonstrating relevant experience

Can the purpose and objective of this Act be met? in a manner that balances the rights and interests of all relevant stakeholders

The Number of conditionally licensed business rescue practitioners The CIPC has conditionally licensed 165 business rescue practitioners with interim conditional licenses, These practitioners have been taking care of 1155 end Sep 2013 businesses that has opted to go into business rescue Practitioners receive a license for each of the ventures they are taking care of. Once the project concludes the appointment and license comes to an end. When the practitioner is nominated and wants to accept a new appointment a new license is issued. The CIPC does not automatically license the practitioner again, they must be compliant with requirements of the Act in all existing ventures.

Professions represented

March 2012 to April 2013

BRP must start saying NO

Future Plans Must include a way to address serious competency/skills challenges. Compulsory test by “expert” could be BRP, to determine viability rescue venture before accepting new rescue project. Pairing on BRP’s Restriction of number of ventures that BPR are allowed to accept Firm action against culprits found to abuse the rescue process, could include litigation to claim back fees and damages Blacklist all that was found guilty Disciplinary review committee through peers review system Exploring the possibility of CIPC assisting unsophisticated affected parties with funds to litigate against willfully malicious and grossly negligent BRP’s Education Framework to determine the skills set of a rescue practitioner Implementation of an Accreditation/Competency Framework Creditor education Creating awareness in the business fraternity

THANK YOU CONTACT DETAILS: Contact Details Vuyani Nkohla 012 394 5012 Donovan van Schalkwyk 012 394 1538