Saiba member and CFO (SA) Louis Klopper has been in the press scores of times over the last few years in connection with the rescue of the Gupta companies that were placed in business rescue in 2017. The primary assets in this portfolio are the Optimum and Koornfontein coal mines, which supply Eskom.
Klopper and his fellow business rescue practitioners (BRPs) have had to face down 77 court cases in the last four years from a variety of sources: lawyers trying to liquidate rather than rescue the firms (and so pick up a quick 10% fee on asset sales); Gupta surrogates coming out to bat for their employers; and a host of opportunists trying to pick up some excellent assets for a song.
“You have to have the stomach for this,” says Klopper. “It’s not for everyone. You have to have a good knowledge of financials, and it helped that I came with 20 years’ experience in banking, where I was dealing with companies applying for loans. You have to understand when a company can be rescued and when it cannot.”
In addition to a solid background in accounting, you also need a good understanding of the Companies Act, particularly Chapter 6 (which deals with business rescue).
SA is seeing an avalanche of companies in distress, a situation aggravated by the Covid lockdowns.
Says Klopper: “Previously stable, profitable and competitive companies struggle to improve operational and financial performance. They turn to downsizing and cost cutting as the obvious solution, unfortunately often with unintended and adverse consequences. Management teams more often fail to deliver desired outcomes as they have no prior experience of financially distressed environments and creating alternative solutions.”
A corporate renewal strategy, or a corporate turnaround strategy, is a response to a decline in corporate performance.
Turnaround management is a process dedicated to corporate renewal. Turnaround management does not only apply to distressed companies, in fact it is equally applicable in any situation where direction, strategy or a general change of the ways of working needs to be implemented. Turnaround management is therefore closely related to change management and transformation management albeit with a more holistic approach.
“Turnarounds are superb management schools. Everything needs fixing. Nothing is sure except the need to recover as it cannot be assumed that customers will always buy, suppliers will always deliver and bankers will continue to lend. Turnaround opportunities exist everywhere,” adds Klopper.
Turnarounds are no longer special cases but an all-too-familiar part of business life.
Long turnaround times
It often astonishes people that business turnaround can take years. Hiveld Steel has been in business rescue since 2015.
And you need street smarts to survive the slings and arrows that come with the territory. Klopper points to SAA’s business rescue, which was riddled with interference by the shareholder. The rescue of Vantage Gold, like Optimum, has been mired in legal disputes which end up delaying the revival of operations. At stake are potentially thousands of jobs.
“Anyone entering into this progession had better be prepared for a few street fights and some long engagements,” says Klopper.
Causes of financial distress
Companies end up in financial distress for a variety of reasons and in different degrees of severity, ranging from plain loss of shareholder value to a liquidity crises and eventual bankruptcy. A Management or Turnaround professional, at any point along the path of decline, tries to avoid further deterioration of financial and operational distress and subsequently regenerate value for old and new stakeholders by turning the business around and restoring its cash generating capacity.
The role of the practitioner
A turnaround practitioner enters a company with a fresh eye and total objectivity and is thus able to identify problems that may not be visible to company insiders, and implement solutions.
A turnaround practitioner has no prejudice, ulterior motive or other obligations to bias the decision making process, allowing objective, and sometimes unpopular, yet necessary decisions and steps required for a company’s survival.
A turnaround practitioner’s experience within a particular industry is less important than experience in a crisis situation when a company is facing severe financial distress. This specialist must make critical decisions, quickly, to stem the financial bleeding and give the company the best possible chance of recovery.
Operating in the eye of the storm, a turnaround practitioner must deal equitably with angry creditors, frightened employees, nervous customers and a suspicious board. Clearly no assignment for the faint hearted.
The best way to learn is to apprentice under an experienced BRP
Klopper says there are aspects of business turnaround and rescue that are not easily taught in schools. “With a good knowledge of accounting you can achieve some success advising smaller companies in turnaround strategies, but as the rescue engagements become bigger, it is better to apprentice under a senior. I entered the business rescue field after two decades as a turnaround practitioner. You need experience to tackle the bigger engagemnets as a BRP, so my advice is to apprentice under an experienced BRP.
Opportunity for Saiba members
Saiba members can become licenced as Business Rescue Specialists.
Chapter 6 of the Companies Act, 2008 requires that Saiba establish and maintain proper mechanisms to ensure that its members achieve professional competence with regard to Business Rescue. This is achieved by providing recognition for prior experience and knowledge.
SAIBA is obligated by the Companies Act, 2008 to ensure that its members that provide business rescue services to clients, are:
- competent and able to provide high quality services,
- accountable for the work they perform,
- committed to relevant CPD, and
- aware of their role and responsibility to clients, and society.
You can find out more here.