Sadly, many businesses are currently considering whether business rescue might be a route they need to explore. The good news is that, as dire as it sounds, it can be a hugely positive experience – if done right, and by the right people.
SATSA, the Southern Africa Tourism Services Association, hosted COBRA in a recent webinar. COBRA – which stands for COVID-19 Business Rescue Assistance – was created at the start of the Covid-19 pandemic. It “consists of a consortium of enterprises that are united to use business as a force for good by assisting other companies to thrive in a challenging economy, to safeguard livelihoods, and ultimately to improve the social wellbeing of all South Africans”.
The COBRA representatives shared the five following facts about business rescue during the webinar, and what it can potentially do for your business:
#1 Business rescue is a mechanism to help a company out of financial distress. It works by creating a legally sanctioned, temporary reprieve from financial obligations so all resources can be channeled into making the company sustainable again. During this time, business rescue practitioners will work closely with the company to implement the changes they think are needed to turn it around.
#2 Financial distress is defined as a company being unable to meet its financial obligations when they fall due in the next six months. The directors of a business are legally obliged to do something when the company goes into financial distress – whether this is business rescue or an alternative avenue they wish to explore. If they fail to, they can be found to have been negligent and held personally liable when the company folds.
#3 Only companies and closed corporations may apply for business rescue; it is not an option for sole traders and partnerships. Any size company, from an SMME to a large corporation, can apply for business rescue.
#4 The period of business rescue is legally defined as three months. However, it is unlikely this will be enough time to make a business sustainable again, so business rescue practitioners can extend this timeline. This can include putting the business into a “sleep state” for many months, such as during prolonged lockdowns that could be preventing a business from operating.
#5 The process of business rescue is tailored to each busines and its best possible outcome. COBRA draws on its ecosystem of experts from various fields for this. For example: Mediators can negotiate bank repayment holidays, and reduced staff salaries or rentals. Funding partners can help to secure a cash injection. Digital marketing specialists can devise new social media strategies. Click here for a case study of how COBRA helped Knead Bakery through business restructuring.
If you’re wondering what the cost of this is, it is negotiated with each business in question and based on its prospects. Some assistance is pro bono while deferred rates are sometimes set.
You can also watch the SATSA webinar discussion here: