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Industry experts warn of SMEs going into liquidation after lockdown

Edward Kieswetter
Reading Time: 3 minutes

Industry experts have warned that thousands of Small and Medium-Sized Enterprises (SMEs) will go into liquidation after COVID-9 lockdown because they cannot afford the cost of a Business Rescue Practitioner.

Professor Markus Pretorius, a business rescue analyst, says the fees to hire a rescue practitioner can go up to R150 000, adding that 95% of businesses that will apply for Business Rescue will not survive.

Pretorius says research shows that less than 10% of South African companies that apply for business rescue go into liquidation.

Professor Pretorius says there is going to be tough times ahead for small businesses. “Business Rescue is unsuccessful less than 10% of the time. In America, we know their strategy is only 5% successful. I’m not sure how many businesses can be saved. Everyday, we have lockdown the situation is getting worse because the one thing that had been distracted has been the demand. The last time I checked it was about 3 500 rescues, you take 10% of that it’s 350 more or less that’s the truth. Success in business rescue can be looked upon in different ways. It’s not only turnaround. It might also be finding a better return on liquidation, sell or something like that,” says Pretorius.

Last week, SARS Commissioner Edward Kieswetter said they had seen an increase in companies applying for Business Rescue. SARS warned they had seen an increase in the number of companies applying for business rescue.

SARS Commissioner indicated that many businesses will not be able to operate profitably even after the nationwide lockdown.

“Stats SA has seen an increase of 12.3% for February 2020 compared to the same period last year with an increase for applications for liquidations. And insolvency they have seen an increase of 13.9% for January compared to last year,” says Kieswetter.

Chairperson of the Institute of Business Advisors in Southern Africa, Tumelo Tsotetsi highlights how businesses will suffer after lockdown:

Pretorius says many businesses will close shop because they cannot afford a business rescue practitioner.

“A small business a micro business can hardly afford the cost of a business rescue unless they can go into business rescue with a practitioner that is tired. It’s not his main income and it’s not about making money. It’s too expensive for then to use that process. A business rescue practitioner fees, as old as they are, set up in 2008 is like R1 450 an hour or less and if a guy works ten hours a day, which they do because it’s a tough job that’s 13-15 thousand a day.”

He advises the sector to engage with industry stakeholders and financial institutions to investigate strategies for SMMEs and co-operatives to achieve rescue and turnaround strategies. He also suggests increased funding for the sector.

“There are several companies now, that were good companies before lockdown, that used the business rescue procedure immediately after the lockdown started. They planned well. They had Business Rescue Practitioners that were wise. They might get out of this by postponing like a very good restaurant postponing the payments for the location that they use which now they cannot pay until such time they get back into the business. There are some of those that will survive, but I can tell you 95% of businesses will not survive. They just can’t survive when no one is buying, what can they do?”

In this video below, a lawyer at Webber Wentzel Attorneys, Christopher Holfeld talks about the demand for business rescue escalating:

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