Through the New Companies Act, the business rescue practitioner gets the responsibility as an officer of the Court to develop and implement, if approved, a plan to rescue the company that maximises the likelihood of the company continuing in existence on a solvent basis. This often results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.
The purpose of business rescue
The purpose of business rescue is to allow the practitioner the opportunity to take control over the management of the company with the view to improving the financial standing of the company to the benefit of creditors, employees and all other interested parties.
The financial standing of a company cannot reasonably be improved overnight or within a few months. In order for business rescue proceedings to be effective and for the business to be profitable and sustainable, the practitioner must be given a reasonable time frame within which to successfully implement the business rescue plan.
The duration of business rescue proceedings therefore must be subjective and tailored to suit the financial situation and potential of the particular company in question. It would be an injustice to apply strict and narrow time frames within which business rescue proceedings should be implemented.
In the interest of all parties, however, business rescue proceedings also cannot be given unlimited reign and an indefinite period within which to be implemented. In order for a practitioner to effectively and speedily attempt to turn around the company, strict controls, measures and forms of accountability need to be kept in place in order to protect the interests of all affected parties. Section 132(3) of the Companies Act creates that very instrument of control and accountability.
In terms of section 132(3) of the Companies Act, if a company’s business rescue proceedings have not ended within three months after the start of those proceedings, or such longer time as the court, on application by the practitioner must:
a) Prepare a report on the progress of the business rescue proceedings, and update it at the end of each subsequent month until the end of those proceedings; and
b) Deliver the report and each update to each affected person, and to the:
- Court, if the proceedings have been the subject of a court order; or
- Companies and Intellectual Property Commission (the commission), in any other case.
After implementation of the business rescue plan, whether successfully or unsuccessfully, there comes a point where the practitioner must eventually evaluate the financial standing of the company and terminate business rescue proceedings.
In terms of section 141(2) of the Companies Act if, at any time during business rescue proceedings, the practitioner concludes that:
a) There is no reasonable prospect for the company to be rescued, the practitioner must:
- Inform the court, the company, and all affected persons accordingly; and
- Apply to the court for an order discontinuing the business rescue proceedings and placing the company into liquidation;
b) There no longer are reasonable grounds to believe that the company is financially distressed, the practitioner must inform the court, the company, and all affected persons, and
- If the business rescue process was confirmed by a court order or initiated by an application to court, apply to a court for an order terminating the business rescue proceedings; or
- Otherwise, file a notice of termination of the business rescue proceedings with the commission
Tools at your disposal
Business Rescue is another tool that the business owner has in his or her arsenal in these tough trading conditions but it is not an easy road and it reminds me of this parable below:
Frog in a Milk-Pail
A frog was hopping around a farmyard, when it decided to investigate the barn. Being somewhat careless, and maybe a little too curious, he ended up falling into a pail half-filled with fresh milk. As he swam about attempting to reach the top of the pail, he found that the sides of the pail were too high and steep to reach.
He tried to stretch his back legs to push off the bottom of the pail but found it too deep. But this frog was determined not to give up, and he continued to struggle. He kicked and squirmed and kicked and squirmed, until at last, all his churning about in the milk had turned the milk into a big hunk of butter. The butter was now solid enough for him to climb onto and get out of the pail! The lesson: Never Give Up!
Business rescue proceedings must end if the practitioner decides that the company cannot be rescued, or if his rescue plan is rejected, or if the company emerges from financial distress, or finally, if the business rescue is successfully implemented.
Innovative Business Solutions And Compliance
Compliance with certification is a strong way to demonstrate that you are managing your business proactively.
As a business owner, you are probably aware of where your business could improve. Sometimes a business owner would like to improve their business but is not sure how to begin. Therefore, it is of the utmost importance to develop an environment which will foster innovation and create key steps to improve your business while simultaneously trying to comply with all of the necessary legalities.
It is important for an entrepreneur to assess their situation first. Most business owners will ask the question why? Why can’t everyone will follow the same steps to success. Every business is different and unique, therefore, before you start making changes within your business, it is a good idea to make sure you have a full understanding of the factors affecting your business success and whether you are complying with necessary legalities.
Compliance may actually improve performance by giving your business a competitive edge. Legal compliance can assist you with improving your customer relations, enhancing your reputation and most importantly avoiding the cost of legal proceedings.
There’s this saying, ‘What gets measured gets improved’ explains Charles Gaudet, founder and CEO of Predictable Profits, a consulting firm that offers advanced marketing techniques to entrepreneurs who are passionate about expanding their small businesses.
Related: Compliance For Entrepreneurs
Here are a few strategies that you can use to make your business more profitable in the future.
Innovative Marketing solutions
For every business owner, marketing is an important tool to improve their businesses. You may think that you are missing an opportunity if you don’t jump right attracting customers with some type of marketing message.
However, as quoted by John Rampton ‘’one of the best things you can do to achieve growth is to slow down and spend time studying the trends.” What does this mean? While rushing into marketing your product you tend to forget certain details, and once it is out in the public its difficult to forget or to undo. Therefore, its very important to research the market and consumer trends before launching anything.
This becomes very important when you consider the potential risk to your business for the infringement of another product, which is confusingly similar to your product. You also do not wish to be guilty of using a similar brand name, slogan or logo as one of your competitors. Therefore, before you set out your personalised solutions when designing ads and directing messages to consumers ensure you are not infringing on anyone else’s rights as this will likely lead to expensive legal costs for your business.
Compliance Breeds Confidence
It is important to remember that clients are concerned whether suppliers are properly compliant. Compliance with certification is a strong way to demonstrate that you are managing your business proactively and that the money a customer will spend i.t.o. buying your goods or services, is in safe hands. Conversely a failure in compliance can, as well as exposing you to the risk of regulatory sanctions, severely damage your business’ credibility.
For example, in the financial services industry there is an increasing requirement to demonstrate strong security to both external auditors and prospective customers.
With regulation that you feel is of no value, determine how to satisfy the requirements with the minimum effort necessary. Do, however, double check that you are not missing out on a benefit that may be rewarding for your business.
In conclusion, it is important to note when improving your business one always need to act in accordance with the correct laws and procedures. Therefore, if a company is embracing the difficult task of being compliant, I recommend using this as a competitive weapon to improve your business. It just might end up making you and your team better which is usually rewarded with more business.
Policies and Procedures – A Critical Business Support Tool
No longer just an administrative burden, policies and procedures are an essential business support tool in a complex business environment.
In South Africa, SMMEs account for more than 70% of the overall employment rate. It’s critical, therefore, that SMMEs maintain both stability and growth concurrently – our country’s economic development depends on it. However, the tension between stability and growth must be managed, particularly in today’s complex regulatory environment with its ever-increasing compliance requirements.
Smaller organisations often consider policy creation, management and distribution as an administrative burden. Fortunately, growing numbers of small business owners and managers are realising that accessible and clearly-written policies and procedures are essential to business success.
Companies that create, manage and distribute clear policies and procedures reap significant business benefits, some of which are highlighted below.
Consistency and Stability
Clear policies and procedures ensure that staff and management adhere to specific ways of working, minimising time spent on analysis and interpretation, while creating consistency and stability across the organisation.
Policies and procedures allow new hires to onboard quickly, while ensuring they adhere to standard practices and controls.
Health and safety policies not only protect staff, but also visiting clients and stakeholders.
It is important to define boundaries around a position or role. Employees must know and understand their respective responsibilities.
Standardised procedures lead to cost efficiencies from both time and resource perspectives.
Policies and procedures allow organisations working in different areas to develop a uniform approach to business processes which, in turn, supports internal staff transfer when and if required.
Businesses operate in a highly regulated environment. Proof of compliance is not only required in terms of the regulatory environment, but also in terms of risk management and governance. SMMEs do not always appreciate the value demonstrable risk management and governance structures can have, albeit as intangible assets. These structures enhance the oversight role of any business, providing more developed and sustainable business strategies. An additional benefit is the ability to manage liability arising from negligence or malpractice suits. It is no longer enough just to have a policy in place though – distribution and access must be shown.
SMMEs can create and develop a learning culture depending on the availability and distribution of policies and procedures. Tests and assessments linked to specific policies confirm knowledge transfer, formalising both learning and the eligibility to complete tasks.
Given the ever-increasing complexity and competitiveness of business today, policies and procedures provide the parameters and guidelines of business operations, enhancing efficiencies, increasing value and promoting professionalism. Policies and procedures are no longer just an administrative function, they are a critical tool for business success.
4 Vital Differences Between King III And King IV™ On Corporate Governance
Ilana Steyn, unpacks some of the most significant differences between the Institute of Directors in Southern Africa’s (IoDSA) latest report on corporate governance, the King IV Report, and its former version, King III.
April 2018 marks a year since the effective date of the IoDSA’s (Institute of Directors in Southern Africa) latest report, the King IV Report on Corporate Governance ™ (King IV™), on effective and ethical corporate governance.
What is the King Report?
If you’re not familiar with the King Reports: it’s a series of reports that translate international standards and big-time happenings on corporate governance into set of local principles. Each new Report replaces the former.
The aim of the King Report is to set up actionable principles for South African company leadership to act as modern, good corporate citizens.
It also ensures those in leadership positions act in the best interest of the company and all parties influenced by the company. The first Report, King I, published in 1994, and was the first officiated document of its kind in South Africa.
Why is it useful to my business?
The Report also promotes transparency within your company’s leadership to ensure transgressions aren’t hidden that will eventually damage the company. The Report also ensure blunders can be evaluated, found and corrected ASAP. Today, its mandatory for all JSE listed companies to implement the Report into their company policy.
If you’re a smaller business or a non-profit, you can comply with the Report voluntarily; by applying the principles you’re essentially ensuring the long-term sustainability and survival of the business.
It also helps that create a healthy corporate culture and when your business’s foundation is healthy, growth is unthreatened.
If you haven’t applied any of the former Reports in your business, you’re in luck; King IV™ is the simplest, and seemingly the most practical, Report in the family of four reports.
Why was King IV™ needed?
Companies, especially smaller businesses, often struggled to apply the King III due to its long-winded structure.
King IV™ was needed because King III, published in 2009, was out-dated in terms of present-day concerns like technological advances, the increased need for online transparency, long-term resource sustainability and information security.
Here’s the rundown of the most significant differences between King IV™ and King III.
1. King IV’s™ structure is much simpler to apply
While King III did a good job of summarising the extensive scope of effective and ethical governance into 75 principles, the Report still lacked clear guidance on real-world application.
Ensuring the effective incorporation of all 75 vague, ethical principles was too exhaustive for most companies to implement, monitor and account for.
That’s why King IV™ took a different structural approach. King IV™ boiled good corporate governance down to 17 simplified principles, each supplemented with various recommended practices to make it easier for smaller companies to implement the principles within their day-to-day running.
2. King IV™ spotlights practical implementation
King III lists multiple ethical principles and then commands companies to explain how their management and actions honour those principles. Unfortunately this meant companies approached it like a mindless compliance checklist.
King IV™ also states principles, but more importantly, requires organisations to actively report on the implementation of the recommended practices thereof.
Mervyn King, the chair of the King Committee, dubs this the shift from a “apply OR explain” mentality to a “apply AND explain” mentality. The Report also allows organisations to report on alterative-implemented practices – provided they support and advance the principle.
To make the application simpler to grasp, King IV™ clearly differentiates between the long-term Outcomes, the ethical Principles and the recommended Practices. Essentially the new structure and its requirements mean companies have to engage in thoughtful implementation and reporting of those practices.
3. King IV™ is inclusive to more than just large companies
After King III, there was a significant demand for the inclusivity of smaller businesses, and governmental or non-profit organizations in the King Report.
Consequently, King IV™ dedicates an entire supplement chapter to guiding municipalities; non-profit organizations; retirement funds; small and medium enterprises and state-owned entities in the implementation of the Report.
Also, where King III used terms like “companies” and “boards”, King IV™ very purposefully uses more inclusive terms like “governing bodies” and “organizations” throughout the report. It’s clear that King IV™ aims to move the principles on good corporate governance into real-world action – for all organisations.
4. Difference 3: King IV™ pushes for more accountability, transparency and reporting
What King IV™ does quite differently from King III, is recommending the application of its principles within set timelines, reports and committees within it’s recommended practices.
King IV™ strongly propagates transparency, the delegation of responsibility and the implementation of accountability by putting pen to paper in term of officiated aims, bodies responsible for those aims and the provisions of consistent reports.
Take leadership as an example, where King III would just stipulate what being a good leader means, King IV™ advises you to set goals, delegate responsibility and evaluate progress through reports and accountability.
An example would be to set up a committee, consisting of lower management levels, with clearly identifiable responsibilities and then to measure their progress via reports. It comes down to the ignorance no longer being a valid excuse. Directors should be aware of all issues within your company.
Directors should take responsibility for everything that happens within their organisation – you can’t plead innocence on the grounds of not knowing. There should rather be reports in place to identify and uncover any discrepancies early on.
Essentially, where King III lacks in the aim of ensuring the actualization of good corporate citizenship, King IV™ steps up the game.
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