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Liquidations: Business rescue to save the day?

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Evidence suggests South African companies are having problems. The Sarb won’t expect the economy to develop in 2010, the RMB/BER business confidence index fell towards a seven-year lacking in the second quarter and Statistics Nigeria (Stats SA) data shows the profit margin within the average business has dropped to merely 5%. So, what exactly is behind the important decline in liquidations?

According to Stats SA, the complete variety of liquidations decreased by 22.8% year-on-year in June, with liquidations while in the first 6 months of 2016 falling by 6.5% to 929 cases.

Source: Statistics South Africa, June 2016

Ian Cruickshanks, chief economist at SAIRR, claimed it is probably going that liquidations are decreasing because providers that have made it this far may very well have implemented structures and techniques important for survival.

“On the top it feels like grounds to get optimistic yet it is untrue for those who go through the substantial improvement in business rescue,” said Adam Harris, a partner at Bowman Gilfillan.

Companies and Ip Commission (CIPC) data shows 2 148 companies started business rescue proceedings between May 1 2011, when business rescue provisions were promulgated within the Companies Act, and March 30 2016.

According to Eric Levenstein, a director at Werksmans Attorneys, liquidations are dropping off because business rescue has become a possibility for distressed companies.

Harris described business rescue as “the last dance in the desperate debtor”. “The intentions behind business rescue are perfect. It’s to preserve the integrity of companies and also to preserve jobs in may sometimes it truly is being abused in practice,” he was quoted saying.

“The trouble with business rescue is that often some entrepreneurs are applying being the right way to prevent paying creditors or having their assets foreclosed. It absolutely was created to help viable businesses having difficulties survive, I feel a lot of people aren’t with it for what was intended,” said Gerrie van Biljon, executive director of Business Partners. He cautioned against drawing links involving the decline in liquidations along with the introduction of economic rescue.

According to Keith Fairhurst, a director of Unleash Business Consulting, weak economic conditions have placed most companies in distress, with a few even “just hanging on by their teeth, hoping that things could possibly get better”. “In many cases, we think business rescue will be left far too late. Popular bands are using it as a final resort even though the twelve signs were as clear as daylight how the company what food was in trouble 12 or even 24 months before stepping into business rescue,” he stated.

Levenstein agreed, saying the issue of abuse starts shed off. “Business rescue does buy time but directors start to recognise that there are no easy use in delaying the inevitable. Directors and creditors have gotten far wiser

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