Business rescue – what every financial director should know

Many financial directors face this unpleasant yet familiar scenario at some point in their careers: sales at the company have been dropping for several quarters in a row. Consumer spending has dropped. The economic environment is looking less able to support your company. The business is struggling to pay salaries and honour financial commitments.

Most financial directors and business owners can tell at this point whether their companies are just going through a rough patch or whether the business has reached a turning point and drastic steps need to be taken.

In the old days, if things were looking grim, most roads led to sequestration or bankruptcy. Nowadays, however, there’s a glimmer of hope on the horizon for those in the hot seat – be they business owners or financial directors — hoping to keep their businesses afloat. It’s called business rescue, and it’s been made available by the Companies Act since 2008.

Werksmans Attorneys describe business rescue as something that aims to “restructure the affairs of a company in such a way that either maximises the likelihood of the company continuing in existence on a solvent basis or results in a better return for the creditors of the company than would ordinarily result from the liquidation of the company.”

So there’s happier news in the offing – hopefully for your company, if not, at least for the creditors to whom you are indebted. But when is it time to grab for this final life raft? The qualifier for whether or not a company should be placed in business rescue is whether or not it is “financially distressed”. Often, it will be up to the full or part time financial director to determine whether the company meets this definition, by scrutinizing its finances and determining whether it meets the following criteria:

• The company is reasonably unlikely to be able to pay all of its debts as they become due within the immediately ensuing six months; or
• It appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months.

If either of these are applicable — in other words commercial or factual insolvency are a possibility — then it may be time to move forward with business rescue.

As either a full time or part time financial director, once the company has made the decision to take this route, you’ll need to become familiar with how it will affect your business.

Werksmans explains that business rescue will result in the following taking place in your company:

• the temporary supervision of the company, and the management of its affairs, business and property, by a business rescue practitioner;
• a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and
• If approved, the development and implementation of a business rescue plan to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity.

As a full time or part time financial director, this process will have an impact on the decisions you make, as well as whom you interact with on a daily basis.

You need to acknowledge first off that your company will be ceding ultimate control to a third party. This means that while you are used to calling the shots about all things financial, a company undergoing business rescue will now need to defer the final financial decisions to the business rescue practitioner.

This is likely going to require you swallowing your pride and putting on your most generous “team player” hat. Effective communication with the business rescue practitioner will become paramount. As the new head contemplates making certain decisions to “save” the company, you’ll need to prove that your opinion is valuable in order to be included in the process. Naturally, the new status quo will require you to shift the way you traditionally make decisions.

The flip side of this challenge will be that the business rescue process will keep the creditors at bay. As a full or part time financial director, if you’ve got to the point of business rescue, you’ve probably spent a good while fending off the creditors. To know that the company will be “untouchable” by claimants for some period of time will come as a huge relief – one that is probably worth the hassle of working with a new partner for.

Lastly, as a full or part time financial director, you’ll need to weigh in on the business rescue plan that will be developed for your company. Your insight should help to guide the direction of the plan. The level of your involvement in this process could determine your involvement with the company once it has found its feet again. Astute insight and guidance from the financial director are needed more than ever before. Prove your worth!

If your company needs the direction of an experienced full or part time financial director to assist in the sensitive process of business rescue, contact The Finance Team. One of our experienced executives can provide you with the assistance you need for the period of time that you need it.

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