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‘Ground-breaking’ business rescue provision can save jobs – Davies

Dr Rob Davies

Dr Rob Davies

Photo by Duane Daws

19th August 2014

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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Trade and Industry Minister Dr Rob Davies has lauded the success of the Companies Act of 2008, which, when it was implemented in 2011, had many stakeholders nervous of South Africa’s readiness to embrace such a major reform.

Speaking at the Company Law Symposium, in Kempton Park, he said one of the ground-breaking features of the legislation, namely business rescue, had emerged as an important and potentially valuable provision.

Under the previous regime, judicial management practically ensured liquidation.

However, the business rescue intervention reduced the number of liquidations and allowed for early detection and the turnaround of companies in financial distress, as well as saved jobs.

This intervention had been based on international practice that had saved US automotive firm General Motors (GM) from bankruptcy in 2009.

In June 2009, GM announced that it and three domestic subsidiaries had filed voluntary petitions for relief under chapter 11 of the US Bankruptcy Code in the US Bankruptcy Court for the Southern District of New York.

The auto manufacturer, at the time, had reported consolidated debt of $54.4-billion as at March 31, 2009, as well as additional liabilities, including an estimated $20-billion obligation to the United Auto Workers Voluntary Employee Beneficiary Association.

The US-based manufacturer rebounded strongly after a 39-day bankruptcy had provided the group “time to repair the balance sheet” and reorganise into a multibillion-dollar auto industry group following agreements with the US Treasury and the governments of Canada and Ontario and a court-supervised transfer of assets to a “new GM”.

Davies highlighted that the business rescue provisions under South Africa’s Companies Act facilitated the rehabilitation of financially distressed companies and the development and implementation of business rescue plans.

Since the law’s implementation in 2011, over 1 300 notices for business rescue had been filed by embattled South African companies, he pointed out.

Only 73 of those under business rescue had resulted in liquidations.

Nearly 350 business rescue proceedings had ended and in excess of 100 were terminated.

There were still over 700 active business rescue plans under way.

“What this tells me … [is that] there is a tool that is leading to solutions other than bankruptcy [for financially distressed companies],” Davies said.

Business rescue had emerged as an important tool to save companies that were experiencing short-term challenges and save the jobs and assets at stake.

In June, Statistics South Africa had revealed an improvement in the number of companies applying for liquidation, showing a 24.9% decline in liquidations during the first five months of 2014, compared with the comparative period in 2013.

Law firm Bowman Gilfillan said, at the time, that the fall in official figures could indicate that the financially constrained entities were using alternative mechanisms.

“Where liquidations are concerned, it is significant that there has been a healthy trend of declining numbers since 2009 when liquidations totalled 4 133, against 2 374 last year,” the law firm said.

Meanwhile, Davies noted that the Companies Tribunal, which was established in 2012 under the Act, “is doing what it is supposed to be doing”, citing the handling of 296 cases – 190 of which were company name disputes – in the 2013/14 financial year.

The Companies Tribunal aimed to provide accessible, speedy and cost effective mechanisms for the resolution of company disputes.

Further, much had been done to reverse the effects of the “poison pill” inherited by the Companies and Intellectual Property Commission (CIPC) when it was established through the amalgamation of the Office of Companies and Intellectual Property Enforcement and the Companies and Intellectual Property Registration Office.

The CIPC was responsible for, besides others, the efficient and easy registration of companies and cooperatives, as well as intellectual property rights, such as trademarks, patents, designs and copyright.

The Ministers lauded the CIPC’s effective use of information and communication technology to enable simple registration at a bank, with all banks soon to offer this service.

Edited by Creamer Media Reporter

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