1. Administration of Business Rescue: CIPC Perspective Adv Rory Voller Deputy Commissioner March 2015

2. What is the intention of the Act R egime of judicial administration of failing companies is overhauled with a modern business rescue regime: largely self-administered by the company, under independent supervision (practitioner) subject to court intervention The Act recognizes the interests of stakeholders in general (shareholders, creditors and employees) and provides for their respective participation in the development and approval of a business rescue plan

3. Financial Distress A director would have a duty to pass a resolution for a company’s business rescue or alternatively resolve to wind up or liquidate as soon as he or she becomes knowingly aware that the company is either financially distressed or is trading in insolvent circumstances (both factually, in that its liabilities exceed its assets, or commercially, in that it cannot pay its debts to creditors as and when they fall due). The definition of financial distress in reference to a particular company at any particular time, means that: it appears to be reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable within the immediately ensuring six months; or it appears to be reasonably likely that the company will become insolvent within the immediately ensuring six months. If a company is financially distressed and directors decide not to place it into business rescue, directors will be under a statutory obligation, in terms of section 129(7), to deliver a written notice to each affected person, confirming that the company is financially distressed and is not being placed into business rescue and providing reasons for this.

4. Role of CIPC in Business Rescue Role of CIPC is limited to: Status updating Record keeper of documents submitted Licensing practitioners – Conditional licensing or as per Profession The CIPC does not weigh up the merits of the application

5. Statistics –Business Rescue Started Operational BR Proceeding Applications2011 - 20122012 - 20132013 -20142014 -2015total Business Rescue Proceedings Started3904464103431589 Invalid filings53222140136 Business Rescue Proceedings Ended27123417036711 CoR125.25980569204 CoR125.35981544198 Liquidation46424112141 CO_Set Aside BR281011 Nullities (Proceedings started but was declared a nullity) 105231811157 Active as at 31 January 2015119212240307878 Active as at Q3 (2014-2015 financial year)120212243285860 In total 1589 proceedings started from inception of business rescue on 1 May 2011 to 31 January 2015 while a total of 711 matters ended. Approximately 26% is confirmed as being on going due to filing of status reports in the last 3 months.

6. Statistics – Business Rescue per Entity Category

7. Statistics - Business Rescue Started per Province Majority of proceedings in Gauteng then followed by Western Cape Province is not always confirmed with Notice to Start Business Rescue Proceedings

8. Statistics - Business Rescue Started per Province (cont…)

9. Statistics - Termination Reason for termination is not always clearly stated Content of CoR125.2 limited Not all “Termination – Liquidations” results in liquidation

10. Statistics - Liquidations Liquidation applications filed directly without terminating proceedings first. Liquidation and business rescue processes and registers not integrated at this point in time No clear sequence of filing documents Ideally, termination and then liquidation documents Activation of business rescue status assists – need to be moved to in business before liquidation application can be processed

11. Statistics - Business Rescue Started per Industry Industry is not always stated on Notice to Start Business Rescue Proceedings and if description is provided such is aligned to the closest SIC code industry Use SIC code decoder of SARS to determine industry Primary industry only recorded as from 1 August 2014

12. Conditional licencing Member in good standing of Legal, accounting, business management professions Licenced by the Commission Not subject to order of probation Not disqualified to Act as a Director Does not have a conflicting relationship with the Company The Commission after receiving application must either: 1.Issue a licence as applied for in Form CoR 126.2 2.Issue a Conditional license on terms that are reasonable 3.Refuse the licence

13. Conditional Licences - cont The Companies and Intellectual Property Commission (CIPC) has decided to thoroughly investigate the turn around practices locally and internationally before final licenses are granted to appropriate applicants to execute business rescue proceedings. In the interim, all businesses that are financially distressed and want to take a decision to start rescue proceedings can file notices prescribed in the Act on form CoR 123.1 – Notice of beginning of Business rescue - with the CIPC. They are advised to identify a prospective practitioner that will have to apply to the CIPC to be issued with a license. Such licenses will be considered on an urgent basis. The interim conditional licences will be granted for a limited period and will relate only to that specific business. A letter from the business that is applying for business rescue proceedings that nominates the applicant as the rescue practitioner. The letter must also provide the CIPC with the companies most recent public interest score

14. Conditional licences - cont Evidence to substantiate the factual information in respect of your history and relevant practical experience. Provide applicable references that relate to the years of experience required for the specific group applying for. Certified copies of suitable educational qualifications that will sufficiently demonstrate that you are equipped to perform the functions of a business rescue practitioner. Registration number/s that reflects membership of relevant professional body or bodies Certified copy of your Identification Document or Passport. Contact details containing an e-mail address and cell phone number A statement that the applicant is not disqualified from being appointed as a practitioner in terms of section 138(1) (c) or (d) and a letter in which he/she accepts the appointment.

15. Updated Conditions In terms of Section 132(3) of the Companies Act (Act 71 of 2008) as amended, if a company’s business rescue proceedings have not ended within three months after the start of those proceedings, or such longer time as the court, on application by the practitioner, may allow, the practitioner must – Prepare a report on the progress the of the rescue proceedings, and update it at the end of each subsequent month until the end of those proceedings; and Deliver a report and each update in the prescribed manner to each affected person, and to the Commission. In terms of Sections 147(1)(2) & 148 (1)(2), the practitioner must convene a meeting of creditors and employees respectively and must give due notice of the meeting within 10 business days after being appointed. In terms of Section 150(1) and (5); the practitioner must prepare a business rescue plan for consideration and possible adoption and the plan must be published within 25 business days after the date on which the practitioner was appointed.

16. Updated Conditions - cont In terms of Section 151(1) and (2); Within 10 business days after publishing the business rescue plan, the practitioner must convene and preside over a meeting of creditors and other holders of voting interest to consider the plan. The practitioner must at least 5 business days before the meeting, deliver a notice to all affected persons, setting out the date, time, place, agenda and rights of affected persons. In terms of Section 153(1) & (5), if a rescue plan has been rejected and no further action was taken by a person, the practitioner must promptly file a notice of termination of business rescue proceedings. The practitioner must keep a proper record of the processes and all correspondence. The practitioner must ensure that he/she has sufficient capacity at all times to accept the appointment.

17. PIS and categories of BRPS Size of the Company 1.Large Company – Public interest score : 500 + 2.Medium Company – Public interest score : 100 – 499 + 3.Small Company – Public interest score : 99 - Categories of Practitioners: Turnaround experience 1.Senior – 10 years or more 2.Experienced – 5 years or more 3.Junior – Less than 5 years Joint appointments are allowed.

18. Statistics – Practitioners 214 licenced practitioners

19. Top 10 BRPS by numbers of appointments NAME CATEGORY Jean Pierre JordaanExperience Johannes Klopper (Hans)Senior Thomas George NellSenior Jacobus H Janse van RensburgSenior Grant ChittendenExperience Christiaan BeerJunior Werner CawoodExperience Thomas SamonsExperience Stephanus J M SteynSenior Jacobus M van TonderSenior

20. Age analysis – Terminations and Substantial Implementations Terminations 3% of terminations filed after 2 months of starting of business rescue proceedings 5% of terminations filed after 4 months of starting of business rescue proceedings Substantial Implementations 4 % of substantial implementations filed after 2 months of starting of business rescue proceedings 16 % of substantial implementations filed after 4 months of starting of business rescue proceedings

21. Administration Challenges Incomplete Notice to Start Business Rescue Proceedings Legislative requirements and administrative requirements Legislative requirements: (i) CoR123.1 - 100% complete from customer code to confirmation of dates; (ii) Resolution - must be signed by persons as per CIPC register (iii) Affidavit / Sworn Statement – independently commissioned, contain sufficient detail to identify cause of the distress and how the entity belief it should be resolved (iv) Status of entity does not allow for business rescue proceedings Administrative requirements: (i)PI Score and breakdown – must provide breakdown (ii)Confirmation of primary industry (iii)Confirmation of registered address (iv)Confirmation of legal proceedings especially litigation proceedings (v)Confirmation of independence of to be appointed practitioner (vi)Confirmation of acceptance of appointment Cause / reason for termination not always provided Status reports not filed timeously – difficult to determine whether proceedings are on going or not

22. Administration Challenges (cont…) Practitioners not always responsive to requests for updates PI Score not submitted with substantial implementation Unknown whether business rescue “saved” the business operations or whether provided better return than liquidation proceedings. Require additional information for better statistical information on proceedings and research Example: Changes in PI Score for 3 matters that PI score at start and PI Score at end: Not able to provide “personal” service on business rescue – especially difficult for practitioners due to tight timelines No formal workflow system – all is done manually CIPC is not the custodian / administrator of business rescue – self regulatory process with the primary driver the practitioner PI Score at Beginning Business Rescue PI Score at Substantial Implementation 250 (unknown employees)36 (1 employee) 484 (40 employees)408 (35 employees) 75 (35 employees)2 (0 employees)

23. Questions