Business Rescue Practitioner friend of Foe?

This article was prompted by my observations of the varying attitudes displayed by affected parties towards me depending on the progression of the business rescue proceedings. Practitioners are often viewed with suspicion, perceived as a “necessary evil”, an interloper and someone with their own agenda hell bent on destroying any value that is left in the distressed company. Others are ambivalent while the less aggressive decide to give the practitioner a chance.

Background on appointment process

The practitioner is nominated and appointed by the directors of a company filing to commence business rescue proceedings or by the courts if an external party applies for the company to be placed under temporary supervision.

Role of the practitioner vs liquidator

A business rescue practitioner’s role is essentially supervisory during the proceedings, subject to the duties and responsibilities of a director of a company, having extensive powers over the pre-existing management. The board of directors continues to exercise their functions subject to the authority of the practitioner.

A liquidator is appointed to oversee the winding-up of the affairs of a juristic person by, inter alia, collecting outstanding debts and disposing of assets while a practitioner is appointed to provide a better return for all affected parties and/or return the company to a solvent position.

Attributes of a practitioner according to the act

The Act states that the criteria for a person to be registered as a practitioner are:

• Must be a member of good standing of a legal, accounting or management profession.
• Must not be subject to an order of probation and would not be disqualified from acting as a director of a company
• Is independent and does not have a previous relationship with the company to ensure that the rescue is handled in an impartial manner and the objectivity of the practitioner is not compromised by that relationship.

The Act falls short as it does not specify the wide ranging skills required for a person to function as a practitioner.

Actual attributes required of a practitioner

In my opinion, as an officer of the court, the practitioner must be ethical and transparent in all aspects of the proceedings. Some of the skill sets required are:

• Business acumen and commercial savvy,
• Management and leadership experience,
• Accounting and analytical aptitude to review financial statements, and
• Decision making abilities.
• Effective eloquent communication skills.

This is because the practitioner’s role also includes acting as the buffer between all the affected parties and management particularly in the early stages.

Management and employees

At the commencement of the process, management in most instances have a belligerent attitude towards the practitioner and do not have confidence in the abilities of this unknown “supervisor”. The practitioner needs to be ethical and operate from a transparent perspective at all times. Sometimes tough decisions need to be taken that often results in the restructuring of the business with potential job losses.

The practitioner needs to work with the management of the business and facilitate a team ethic. This requires the buy-in of management in gaining their confidence. I was once asked “you are a woman what do you know about my business and the industry?” when the time came for the plan to be published the question posed then was “where did you learn about my business” my retort was “from you”.

Creditors and banks

The practitioner needs to win over the disgruntled creditors who are angry about the potential loss of the amounts owing to them. They can become very aggressive and demanding on the practitioners time and resources.

Banks, in particular take a hard line when a company is placed in business rescue as they believe the “first loss is the best loss”. The bank accounts become “frozen” and access to the proceeds paid into the account is usually denied if the debtor’s book forms part of their security.

The creditors and banks are by this stage very angry because they have been dodged, lied to and not given the truth about the financial distress facing the business. Practitioners must employ a firm, credible stance when dealing with all aspects of the business rescue process in order to have the plan approved and implemented.

Practitioner’s objectives

The main objectives of business rescue are to return the business back to solvency, in other words turn it around, save jobs and provide a better return for affected parties than that of immediate liquidation. Practitioners should have a “save me” philosophy and not run at the first sign of trouble. Turning a business around takes time, extreme effort, innovation and motivation.

Holistic view of the role

The practitioner needs to gain the confidence and trust of all affected parties, creditors, SARS, banks, management, employees, shareholders and unions. The practitioner also needs to be aloof and not get emotionally involved in the soft side of the rescue. People’s lives are affected, particularly employees, they may lose their jobs, income and security. Family owned businesses have a ripple effect on a number of family members and could stand to lose all their assets and livelihood and life style.

It can become a vicious cycle of placating angry creditors winning them over to vote for the plan including the banks and SARS. It can become a “Game of Thrones” whoever has the greatest exposure and vote that could sway the approval and to some extent dictate the terms of the plan.

Conclusion

The first meeting is the perfect first opportunity the practitioner has to placate the affected parties and defuse the anger. A credible presentation must be provided detailing the practitioner’s experience and expertise as well as credibility.

The best way of winning them over is to publish a workable credible plan that is transparent and relevant. Implementation of the plan is crucial to the success of the rescue and creditors must be informed of the progress continuously.

The practitioner can change the negative perception of them by being honest and providing credible feedback as to the status of the rescue. Ultimately the main objective must be to provide a “better return” for all concerned and prevent a liquidation scenario.

I don’t believe the practitioner can either be a friend or a foe – a neutral unemotional standpoint is required to work compliantly with all concerned.