A survey by Deloitte has found that business rescue in South Africa is experiencing a crisis of trust. For the first time this year, the study was broadened to look at three African countries including South Africa.
The total number of liquidations in February this year fell by 10,1% compared with February last year. This resulted in a smaller number of close corporations and companies that were faced with going through a business rescue in the 12 months ending in February.
Business rescue is a process to restructure the affairs of a company that is in distress.
Deloitte Africa Restructuring Survey says the key message from the survey is the widening trust gap that is developing between financial stakeholders and business rescue practitioners – and that there is a need for swift action to restore trust in the process.
A Turnaround and Restructuring leader at Deloitte, Jo Mitchell-Marais says, “This year what came out much more strongly is that fees need to be linked to credit recoveries – which for me speaks to trust. And I think that is echoed both by the number of professionals in this industry. How do we go about bridging that; how do we go about ensuring that we are closing the gap? And it’s so important to do so because BRP is a procedure that gives the South African economy a second chance.”
Deloitte calls for improved regulation of the business rescue industry. A process that falls under the Companies and Intellectual Property Commission.
Mitchell-Marais further adds, “What came out very strongly was a requirement for regulation. So the CIPC needs to do its job. Secondly, was the experience; so the opportunity to gain time working perhaps with more senior practitioners to see how this is done. There’s no textbook for how to deal with financial distress. You learn a lot of it on the job.”
In addition, key findings that came out of the report are the respondents’ expectations of South Africa’s economic outlook considering the rising inflation rates and increased pressure on consumers.
63% of South African respondents in the survey said they are pessimistic about growth prospects over the coming 12 months.
EDITOR’S NOTE: Please note that this article was amended on Friday 8 April to correct an error in our Thursday’s copy.]
