Duration of Successful Business Rescues

Introduction

In the realm of corporate restructuring and financial recovery, Business Rescue serves as a vital mechanism in South Africa to rescue financially distressed companies. Public Interest Score (PI Score), a metric reflecting a company’s potential social and economic impact, plays a crucial role in gauging the economic value of companies undergoing this process. By considering factors like annual turnover, debt, employee count, and shareholders, the PI Score reflects a company’s footprint on the national economy.

To gauge the economic value of companies undergoing business rescue, one looks to the PI Score. For every R1 million in annual turnover and debt, and for every employee and shareholder, a company receives one point. This score is indicative of the economic effect a company has on the national economy. Therefore, it could be said that 1-point equals R1 000 000 in social and economic value to the country as at 2012. This amount has not been adjusted for inflation therefore it can be seen as a conservative estimate.

Duration of Successful Business Rescues.

According to the data (June 2023) obtained from the CIPC, the total number of finalised successful business rescues where a notice of substantial implementation of the business rescue plan has been filed at CIPC since 2012 amounts to 692.

This analysis divides the timeline into two key categories: companies that filed for substantial implementation within three months and those that did so after three months.

Companies that filed for Substantial implementation within 3 months

Companies that filed for Substantial implementation after 3 months

The quality of the data that the CIPC has been gathering has improved over the years which has enabled same to be analysed more effectively. The data in the earlier years of business rescue has many information gaps however the sample size is large enough to draw meaningful conclusions.

Summary of above

Early Filers: Within 3 Months

Only 48 companies filed for substantial implementation within three months of initiating the business rescue process. These companies span various industries, each contributing to a total Public Interest Score of 4,280. On average, these companies took 2 months from their business rescue initiation to reach substantial implementation.

While the Companies Act may envisage the process to take only 3 months, in practice the data shows that this is the exception and not the rule. It is commendable that these 48 matters demonstrated a proactive approach to implementing swift actions to be able to complete the business rescue process so quickly. Further research on these cases is required. It would be interesting to know how many of these matters were either “pre-packed” or where the business rescue plan provided for a sale of the business or assets.

Delayed Filers: After 3 Months

The vast majority (644 companies) filed for substantial implementation after the initial three months. The total Public Interest Score for these companies reached an impressive 140,085, indicating the scale of economic value potentially saved through the business rescue process. These companies, on average, took 19 months to transition into substantial implementation. These matters showcased a diverse array of industries, including construction, manufacturing, transportation, and more.

The data is therefore clear in that these wonderful success stories of retaining value and jobs take an average of 19 months to complete the process.

Economic Impact

The analysis underscores the substantial economic impact of the business rescue framework in South Africa. The total Public Interest Score for all companies undergoing substantial implementation amounted to 144,365. This could be said to translate to an impressive R140,084,930,000 in terms of potential economic value saved for the South African economy. The public interest score at the date of filing for substantial implementation is not recorded at CIPC and it is assumed that the amount would decrease since inception of rescue in most cases.

Conclusion

Businesses that enter business rescue enter an initial phase of stabilization in the first three months when the business rescue practitioner and his/her team are getting to know the business, identify problems and potential solutions. During this phase the employees are adjusting to the new norm. It is very rare, and only if exceptional circumstances exist, that a company is able to be rescued in the first 3 months.

At the end of the first three months it is only then that the problem statements will have been defined and the interventions required start to be formalised. Following this the next phase of implementation of interventions takes place and can last for at least 6 months.

The data-driven analysis presented above illuminates the transformative power of the business rescue framework in South Africa. The duration of a business rescue is only of concern if the process erodes value. One would be less concerned by the duration of the process if it ends in success. Every one of the 692 companies that have been saved contribute to economic stability and recovery, which was the goal of the legislature when business rescue became part of our law.