Musings on business value, sale preparation, sale negotiations, sale structure.

Posts Tagged ‘planning for business rescue’

The accused may be key.

Posted on 7 Comments

I don’t know about anybody else, but I am pretty much depressed and saddened by the Oscar Pistorius bail application. Can you imagine how we are going to grind to a halt when the trial proper finally breaks loose? Presumably by then an investigating officer will have had a chance to do some homework, with results that will stand up to cross examination.

As one wag put it on Wednesday, Hilton Botha’s poor performance under cross examination by Oscar’s defence counsel was an “Oscar winning performance”. So much so that Pistorius stopped crying for the first time in days. At least this joke is not at the expense of the runner. I won’t lower the tone with the, at least a dozen of those one liners that started doing the rounds within hours of the killing – I’m sure you’ve seen some of them.

But jokes aside – what about the effect on Pistorius’ “business”?

In another exercise I am involved with in respect to Suitegum Splinter, key man insurance is essential to most businesses with a shallow skill base. You know, if one of the key people in your organisation dies or is incapacitated in some way, the insurer pays an agreed amount of money to the business to use in the replacement of the key person. If not that route, the money is paid to the other shareholders so that they can buy the shares from the surviving spouse.

So that ties up with the current mess Oscar finds himself in. One could argue that he is part of a business that includes himself as the star performer, his agent, his public relation  people, his coaches, nutritionists, sponsors, attorneys, travel agent, liaison people, and possibly others.

Like yours, his is a business entity to a greater or lesser extent. And like yours, it has a key person, a specialist – Oscar. Someone without whom the business is all washed up. What would happen to your business in the event that your key person is accused of a serious crime tonight, and arrested tomorrow morning?

Let’s remember that this nightmare broke for Oscar and Reeva only one week ago. In that time Reeva has been cremated and the memorial service has come and gone. That is the most serious consequence of whatever happened that night. But for her boyfriend, DSTV tore down its Oscar advertising on giant billboards around the country on the same day he was arrested! They cancelled the Oscar month theme at the same time. That was the first lot of income that went down the tubes.

Nike at first said that they would stand behind him, but by the time City Press was finished with him a few days later, they and Oakley had given him up. Clarins followed on Wednesday.

People have jumped to conclusions at the evidence in support of a bail application. At the end of the first day, “experts” were shown on television, and sound bytes abounded of people convinced that he is guilty. This on evidence led by his own affidavit as to his version of events. It all seemed so unlikely. Just a jump to the left…

What chance does Oscar (Pty) Ltd have at this stage?

Soon into the second day of the bail application newspapers around the world were announcing him guilty. Evidence of  the existence of two bottles of testosterone had Tubby Reddy telling EWNsport the fact he even had this in his possession meant that action could be taken. Ken Borland suggested that this was “almost worse than the murder charge“.  This because it destroys everything he has achieved before the killing,  he continued.

Then Advocate Roux got stuck into Botha. By the lunch break a BBC journalist tweeted that he had heard a junior member of the prosecuting team say that they were in deep trouble:

  • The testosterone turns out to not having even been tested yet, but the label on the bottle suggests that it is not a banned substance at all.
  • The investigating team missed a bullet (an actual projectile) left on the scene and found by the defence’s team of investigators in the lavatory. No mention of whether or not it was nestled in the contents of Reeva’s bladder, which will become a central part of the eventual trial.
  • The crime scene was not properly protected – the chief investigating officer himself being the biggest culprit.
  • Reports of Oscar’s property in Europe was just “something he had heard”.
  • Evidence of foreign bank accounts included an account that has been dormant for ten years and has no money in it.
  • And more.

By mid afternoon Oscar was able to stare squarely into the eyes of his investigating officer. Clearly he felt a lot better. The day finished for him, but is by no means over. And a step to the right…

Perhaps there was a light at the end of the tunnel; and the Twitterati experts started believing.

At 17:19 on the second day Reuters tweeted that testosterone had been found in Pistorius’ bedroom. This, despite the fact the evidence had been discredited several hours earlier. Reuters’ associated web site is here. Perhaps it will be down by the time you get to it. Perhaps not; I don’t know how they deal with errors. As I write this it is more than 24 hours later, and the story remains in place. With your hands on your hips…

On the third day the prosecution were embarrassed as the story broke that their investigating officer has himself been charged with attempted murder. In desperation he produced a copy of “Sarie” as evidence, only compounding the derision. Not often that a murder is investigated by a criminal suspect who relies on that bastion of investigative journalism – Sarie – to support his evidence that Pistorius intends to go on the run to Italy.

No matter what, Oscar’s previously enviable reputation is in tatters, no matter what the eventual outcome of the trial and with it, the income stream of Oscar (Pty) Ltd. There is very little chance of a recovery from here.

So that’s all very fascinating, but I’m sure you have read and seen and formed some opinions about all that yourself. Having shown that Oscar’s life is effectively a business, and it is a business that for the foreseeable future is wrecked; what would happen to your business if one of the key players were to be accused of a crime tonight, and arrested tomorrow. Whether guilty or not, what would the effect of the arrest have on your business by next week? You bring your knees in tight.

It is not a fair process. Not in the age of instant social gratification. Not when most of Barry Bateman’s followers instantly retweet every comment, appending their own analysis to the one minute old semi-report. When Roux agrees with Botha, he’s awesome. When he disagrees, Botha is an unreliable witness. And 140 characters are multiplied millions of times over in the most destructive antiponzi scheme yet seen in our age. This is the terror that the accused deals with, the gross unfairness. If he is granted bail, do you think he will be able to work on that project with a clear mind? How would you perform in that ugly place?

How do we protect our businesses from this sort of event? An important employee? The managing director? The chief engineer?

  • What is your strategy?
  • Can we insure against this?
  • What damage control ideas do you have?

It may be an idea to discuss the scenario with your leadership team.

 

Business rescue – first defence

Posted on No Comments

This is going to happen to someone reading this blog, in the next few weeks, while everyone is on holiday. It is inevitable.

A major debtor is going to put itself into business rescue (BR), and you are not going to be paid. The bigger the debtor, the longer he has been outstanding, and the easier it is to talk to him at present – the more likely it is for him to go into BR over Christmas.

Right now that debtor is hanging onto life by his finger nails, waiting for the holidays, when he can take care of a lot of statutory time while the wolves are sleeping. That is what planning for BR is all about.

But creditors should also plan. By this I mean that every company should have in place a BR plan, just as you have a fire escape plan, a business continuity plan, a flood plan, a backup plan, and so on. (Of course you have those other things – right?)

What do you do in the event you are sent a fax or email advising you that your largest debtor has been placed in BR? Worse, what do you do over Christmas when a fax lies unattended, or your email is being given a break? Does the security guard know what to do with service by the sheriff?

For many, the plan involves frantic phone calls, out of time, to an over worked BR practitioner (BRP) or to the directors of the company who are not answering their phones in January.

Take a step back. Take a breath. There are provisions in the Companies Act which require the BRP to act within very carefully defined parameters, particularly before the creditors have been asked to vote for the first time. Those voting parameters in the first instance, should be interrogated carefully by all creditors.

In particular, the coming holiday period should be monitored for opportunities where BRPs might take advantage of the general lethargy, to gain an unfair advantage.

Chief amongst early day abuses will be the requirements for all creditors to be notified, and invited to the first meeting. There are only a few days within which this must happen. If the BRP screws up, he is at enormous risk, personally. If you know he has screwed up, you could have a nice advantage. They do screw up, but without creditors noticing.

So what is your BR plan?

  • Nominate someone within your organisation, today, to be “on duty” for the holiday period. He must have access to a recognised official method of acceptance of legal delivery, on all days, including Christmas and New Year.
  • Notify any debtors acting suspiciously that if they are contemplating business rescue proceedings, that the method of delivery is as decided above. Send this by registered mail, or obtain a written confirmation of receipt. Under the proper circumstances, email, and even SMS is legal and binding. If they are being difficult, record a telephone conversation.
  • Send a general circular to all your debtors advising them of your BR official’s details.

Suitegum offers this service, and someone will be on duty 24/7 through the holiday period with a watching brief for our Splinter clients. The fee is small, but well worth the price as cover for potential disaster while you enjoy your holiday.

Let me know on 061 410 2421 or drop me an email if you need more information.

The problem with Business Rescue

Posted on 8 Comments

Business Rescue (BR) is an exciting new addition to the tools available to company directors in escaping from their mistakes, keeping their jobs, and perhaps some of their employees’ jobs too.

It’s a wonderful idea.

Except a lot of other small business owners are going to get screwed by people using the provisions in the new Companies Act. It’s that simple. Close on 1,000 businesses will by now have been “placed in BR”. A few dozen have been rescued. The balance have either been liquidated, or are languishing in BR, waiting for someone to complain.

The biggest problem is that too few attorneys and other professionals have been exposed to the provisions to know when they are being had.

There are many restrictions governing exactly how the BR practitioners can behave. I bet few of them accurately understand the provisions properly, and many of them are going to be paying for their lack of knowledge by digging into their own nest eggs.

If a BR practitioner acts outside the provisions of the Act, he may be held personally liable by creditors. Ask me how. I have been involved in a number of these things in the last eighteen months or so.

It is only a matter of time before a BR Practitioner is taken to task by a creditor, for not following the law closely. It is also only a matter of time before a business rescue is declared a nullity, also because the rules were not followed properly.

If you intend to take your own business into BR in the near future, you should plan for it properly.

Mark

Business rescue – 1Time

Posted on No Comments

After several months of being “in business rescue”, the plug was finally pulled on 1Time Airlines at 3pm, Friday afternoon. It appears that the big white knight got himself some cold feet, and trotted off into the sunset. I guess the real truth will surface in the coming weeks and months.

Of course this has all been very traumatic for those who have recently purchased tickets, particularly those who paid cash, or by way of EFT, and are unable to claim non performance refunds through their credit card companies. “How are we gonna get our money back?” They are all shouting at radio stations right now.

A good question, and one that needs answering, because these customers have, at the decision of the business rescue practitioner, become creditors, and concurrent creditors at that. Effectively they have lent money to the business, after the start of business rescue proceedings (Post BR).

The answer also holds interest for small business people who find themselves inadvertently supplying their customers who have gone into business rescue.

Most business people are acutely aware of the order of payout in the event of a liquidation: Liquidator, secured creditors, preferent creditors (employees, SARS and general notarial bond holders), concurrent creditors (suppliers and unsatisfied customers).

Once a business rescue (BR) process has been entered into, things change around a bit; it’s as if a new estate has been registered, and finance coming into the new estate ranks above the pre BR claims, and in a different order:

  1. BR practitioner expenses
  2. Employees for that portion earned after BR began
  3. Secured lenders after BR began
  4. Unsecured lenders and other creditors for any loan or supply after BR began.
  5. And only then the pre BR creditors in the same order as earlier described.

So new creditors, no matter how insignificant they may feel right now, rank above even the bond holders pre BR.

The point is that ticket holders and suppliers post BR will be ranked in their claims ahead of all the backlog which got 1Time into this mess in the first place. So assuming that the main creditors were fuel suppliers (a reasonable assumption), and I heard on Friday that ACSA was owed more than 100M; they will simply have to wait until the current ticket holders are paid in full, before claiming their first cent.

Now it is also important to note two things:

  1. The business rescue practitioner (BRP) should not have continued with the BR attempt beyond ten days if he did not reasonably believe that the business was rescuable.
  2. The creditors at the time the business was placed into BR had to vote on his initial rescue plan at that ten day meeting. They would not have voted in its favour had they not believed that the rescue was achievable.

In addition, the BRP could not allow the business post BR to run into a position where it was trading in insolvent circumstances in its new balance sheet. To do so, opens him up to claims in his personal capacity from thousands of ticket holders.

So it is likely that all ticket holders will get their money back.

As a business owner, you may be able to draw on the above knowledge in dealing with your own customers and suppliers who have gone into business rescue.

Mark Corke