Advice for companies considering business rescue in SA

Advice for companies considering business rescue in South Africa

What is business rescue?
The business rescue process provides a company experiencing financial difficulties with an opportunity to restructure its operational model and improve cash flow. The law governing business rescue in South Africa falls under Chapter 6 of the Companies Act. This offers a moratorium on legal actions or liquidation measures against the company – giving it some “breathing space” to reduce its debt burden and produce the best possible outcomes for the business owners, employees, creditors and shareholders involved.

In South Africa, this process must be conducted in partnership with an approved rescue practitioner, who will guide the company in choosing the most relevant rehabilitation strategies. These could include, for example, debt restructuring, operational realignment or business rescue financing.

Business rescue in South Africa: the rate of success

The 2015 Business Status Quo Report, compiled by the Companies and Intellectual Properties Commission (CIPC), examined the state of business rescue in South Africa – and found that 9.4% of all business rescue cases are successful.

At first glance, this statistic may seem less than impressive. However, experts argue that this figure should not be taken out of context. The business rescue process is a complex one and there are a number of factors that contribute to the successful outcome of business rescue in South Africa.

    These include:

  • Acting timeously:
    It’s advisable to consider business rescue as soon as a business finds itself in financial distress. The longer the company waits to file for business rescue, and the more debt that builds up, the slimmer the chances are of an eventual return to liquidity.

  • Choosing the right rescue practitioner:
    It’s worthwhile appointing a business rescue practitioner that has sound experience and a well-established reputation in the field.

  • Partnering with a trusted business rescue financier:
    Once a company has commenced with business rescue proceedings, it is advisable to apply for business rescue finance (also known as “turnaround finance” or “post-commencement finance”) from a reputable and trusted business finance provider. This gives the business access to working capital that can be used to increase sales, enhance profits, boost margins and improve its credit rating. With cash flowing into the business, it will be in a position to capitalise on bulk purchase offerings, as well as negotiate purchasing discounts for paying suppliers on time.
Why choose Merchant Factors as your business rescue finance partner?

Founded in 1988, Merchant Factors is a fully independent South African financial institution that focuses on business rescue finance, factoring, trade/stock finance and more solutions that support businesses big and small across the country.

Drawing on decades of experience, Merchant Factors provides expert and comprehensive support as a business rescue finance partner. The firm offers a tailored factoring solution for each organisation, in compliance with the regulatory requirements governing business rescue in South Africa. Factoring enables companies to unlock their working capital quickly by selling accounts receivable to Merchant Factors.

In addition to providing much-needed turnaround finance, Merchant Factors also offers expert credit control and debtor administration services as part of the agreement. Merchant Factors’ professional credit controllers will administer the debtors’ ledger, attend to all credit control functions and take care of collections – keeping the business owner up to speed on all transactions by email, mail or a 24/7 online portal. This eases the burden on the company’s management team and the rescue practitioner, allowing them to focus on other aspects of the business rescue process.

    To qualify for factoring facilities from Merchant Factors, the organisation must:
  • Sell on credit terms not exceeding 120 days
  • Deal business-to-business only
  • Sell on an outright basis

Have no sales involving contractual obligations that need to be performed at a future date, such as retentions, progress payments, interim claims or draws (construction businesses will be excluded)

For more information on a tailored business rescue finance facility – contact Merchant Factors today.

Finance beyond the Numbers.