by Karl Gribnitz

What you can and should do during and immediately following the COVID-19 crisis.

Preserve your assets and cash

What you should do to preserve cash to give your business the chance of surviving this lockdown and what is to follow?

After this lockdown your business might not be able to pay its debts as it has not been able to trade during the lockdown period. During this time the business continued to incur debts such bank charges, interest, rent, wages and salaries against a background of zero income.

Your cash reserves collapse and you cannot choose arbitrarily who you wish to pay or not pay. If you say you cannot pay, you are committing an act of insolvency.

How are you going to fund the losses incurred since the start of the state of disaster in South Africa and losses that will follow the lockdown?

Restaurants often use supplier credit to fund the business and the result might be that suppliers have not been in full as the business cannot generate cash from trading because working capital is depleted.

You cannot simply refuse to pay these debts, as this is act of insolvency and you will require working capital to re-start up and save you business going forward.

Business rescue provides the answer

Business rescue, as set out in the Companies Act, provides for times such as these:

  • if your business cannot pay its debts as they fall due in the coming next six months,
  • you have no alternative according to the Act,
  • but to place your business into business rescue
  • or advise all affected parties why you did not adopt a business rescue resolution.

Under the hand of a duly qualified, experienced and competent business rescue practitioner, business rescue offers the opportunity for a plan to be formulated and implemented.

Once a business is placed in business rescue, no person can bring about any enforcement action and the practitioner can declare a moratorium on all payments until the proposed business rescue plan has been implemented or the business has returned to profitability.

A competent business rescue practitioner will guide the business rescue through the mine field of obligations and processes in order to preserve cash through using all the tools available in terms of the Companies Act.

These steps allow breathing space to return the business to profitability and to its owner.

Business rescue proceedings are very strictly managed by Chapter six of the Companies Act and the practitioner is an Officer of the Court.

Business rescue steps

Actions to be taken during business rescue

Business rescue provides considerable wide ranging powers to competent practitioners to deal with creditors, staff and shareholders – referred to as affected parties.

The practitioner can entirely partially or conditionally suspend any obligation, arising from an agreement, which the company may have at the time of commencement with business rescue.

This effectively means that practitioner has the power to stop paying some creditors, while paying others and whilst incurring new debt to ensure the business’ survival.

This is precisely why the directors should appoint a competent practitioner, who understands the powers whilst balancing the risks associated with making these decisions. 

It takes team work to do this well

G&A Compass and its professional associates have developed a tailored solution for rescuing restaurants and have the experienced professional staff and skill sets to ensure that the business rescue is effectively conducted,  rapidly executed  and that it is compliant with all legislation. The process allows the practitioner to produce competent business rescue plans, while keeping all parties in the picture using project management tools for the implementation, execution  of the business rescue.

G&A Compass offers in association with its professional associates a comprehensive services on turnarounds and business rescues including books, training, evaluation and advisory services pertaining to business rescue.

It also provides advisory services to those affected parties who have been impacted by business rescue or third parties who wish to invest in or acquire outright financially distressed businesses.

G&A Compass and its Professional Associates have successfully worked as a team sharing best practices. The team operates as a unit supporting the practitioners to ensure that the process is managed quickly and efficiently and compliantly.