Unlocking Business Rescue Success:

The Impact of Company Size

Introduction

In the dynamic landscape of business rescue, understanding the influence of company size on success rates is paramount. Drawing insights from data collected by the Companies and Intellectual Property Commission (CIPC) up to October 2023, a comprehensive analysis sheds light on the correlation between company size and the efficacy of business rescue efforts.

We have grouped the PI score to 5 groups, first being 0-20, which would typically be a property owning company that has some debt or a small owner-managed entity employing below 10 people and having less than 10 million turnover. The success rate of these entities is at 17%. The table below shows that the success rate for companies with a public interest score of 100 to 500 are the most succesfull. These are companies employing typically more than a 100 people and having a turnover of more than R50 million. It is interesting to note that the largest band of business rescue filings is in the band of public interest score of 20 – 100. This shows that business rescue is used more often by small companies.

	Substantial Implementation Ratio to Total Filings
PI Score Grouping	Amount of Entities	PI Score Grouping	Amount of Entities
0 – 20	1164	0 – 20	198	17%
20 – 100	1438	20 – 100	295	21%
100 – 500	680	100 – 500	158	23%
500 – 1000	114	500 – 1000	24	21%
1000 +	109	1000 +	17	16%

The table below indicates that the larger the company the less likely that the business rescue process would fail. The smaller the company the larger the chance for the failure of business rescue.

	Liquidations and Terminations Ratio to Total Filings
PI Score Grouping	Amount of Entities	PI Score Grouping	Amount of Entities
0 – 20	1164	0 – 20	490	42%
20 – 100	1438	20 – 100	595	41%
100 – 500	680	100 – 500	228	34%
500 – 1000	114	500 – 1000	41	36%
1000 +	109	1000 +	27	25%

The table below reflects the number of active rescues compared to the number of entities that originally filed for business rescue in the dataset, grouped according to PI Score. It is interesting to note that the companies with the highest public interest scores, have the highest proportionate percentage of the entities that still remain in the business rescue process. This is typical as large companies normally take longer to turnaround.

	Active Rescues Ratio to Total Filings
PI Score Grouping	Amount of Entities	PI Score Grouping	Amount of Entities
0 – 20	1164	0 – 20	464	40%
20 – 100	1438	20 – 100	541	38%
100 – 500	680	100 – 500	293	43%
500 – 1000	114	500 – 1000	49	43%
1000 +	109	1000 +	65	60%

Takeaways

Size Matters: The PI Score

The Public Interest (PI) Score emerges as a pivotal indicator, delineating the scale of entities undergoing business rescue. Categorized into five groups, ranging from 0 to 20 up to 1000 and above, this score encapsulates various facets including turnover, debt, and workforce size.

Analysis reveals a compelling trend: companies with PI scores ranging from 100 to 500 exhibit the highest success rates in business rescue endeavors. Typically encompassing entities with over 100 employees and turnovers exceeding R50 million, this segment boasts a success rate of 23%. Intriguingly, the most frequent participants in business rescue fall within the PI score bracket of 20 to 100, signaling a prevalent utilization among smaller enterprises.

Size versus Success: A Delicate Balance

The relationship between company size and the probability of business rescue failure unveils a nuanced narrative. As depicted in the data, smaller companies face a disproportionately higher risk of rescue failure compared to their larger counterparts. The absence of robust governance structures, such as a dedicated board of directors, often characterizes these entities, leading to delayed intervention and, subsequently, diminished success rates.

Compellingly, the data underscores the imperative for early engagement, suggesting the implementation of an accountability trigger akin to board oversight. Section 129(7) of the Companies Act offers such a mechanism to encourgage early intervention, yet its efficacy remains hindered by non-compliance, underutilization and unenforcement.

Charting the Course: Active Rescues and Company Size

The number of active rescues, indicative of ongoing efforts to salvage distressed companies, further corroborates the influence of company size. Larger entities, as denoted by higher PI scores, exhibit a propensity for lengthier turnaround periods—a natural consequence of their complex organizational structures and extensive operations. Notably, companies with PI scores surpassing 1000 showcase the highest proportion of active rescues, underscoring the intricate nature of reviving substantial enterprises.

Implications for Business Strategy

For businesses navigating the terrain of financial distress, the findings underscore the importance of proactive measures and early engagement. Small and medium-sized enterprises, in particular, stand to benefit from heightened awareness and timely intervention, mitigating the risk of rescue failure.

Moreover, regulatory bodies and policymakers are urged to fortify frameworks conducive to early intervention, fostering a culture of accountability and proactive restructuring. By aligning business practices with the insights gleaned from data analysis, stakeholders can collectively advance the efficacy of business rescue initiatives, thereby fostering resilience and sustainability across the corporate landscape.

Stefan Steyn and Tim Stokes