On the upside, post-business rescue the company will now find it easier to recruit quality human resources to fill key positions; finance can be raised on normal business terms as opposed to distressed terms; and (depending on the type of business) it will probably be easier to expand and diversify the client base to grow and stabilise revenue.
These are a few of the advantages of exiting business rescue.
The shareholder’s dilemma
When selling assets or businesses out of distress or insolvency (business rescue or liquidation), the discounts to market value are huge, because investors simply don’t trust insolvency processes and/or practitioners. Sometimes an envisaged sale of the company or its key divisions would have failed during business rescue due to the poor quality or value of offers received during the process.
The business rescue is still successful due to the operational restructure and return to solvency effected during the process, and the conclusion of the business rescue places the company back in the control of its original shareholder. However this shareholder might not be the most well-suited owner to take the business forward. After all, the company landed in financial distress under their watch.
The shareholder may know this, and would still like to sell the business, but for a value which does justice to the business, its historical track record, its stakeholders, and the turnaround process.
The solution: Distance from rescue
The solution for the shareholder is to put distance between the business rescue process and the sale of the business.
By “distance” we mean a) time and b) further turnaround interventions. These post-rescue interventions are more refined than the heavy lifting (robust interventions) effected during business rescue in order to pull the company back from the brink of liquidation and return it to a level of profitability.
Examples of the post-BR “refined interventions” we speak of are exactly in line with what we mentioned earlier:
- Recruitment of quality human resources to key positions (which was hamstrung during business rescue because who would leave a good, safe job/income for a company in business rescue;
- Continued training of existing human resources with high potential, to assume key management positions;
- Procurement of working capital on normal business terms, and the efficient/effective deployment thereof; and
- Expansion and diversification of the client/revenue base (which was not easy during business rescue because try signing up a new client when they are worried you might be in liquidation a week later which would severely inconvenience them and possibly leave them out of pocket).
The ideal team for “BR to BAU”
Who better to lead the “business rescue” to “business as usual” phase than the turnaround team who successfully got the company through business rescue and returned it in a solvent state to its shareholder.
This BR/ turnaround team has been there intensively for 12-18 months during business rescue and knows the business better than anyone. Post-business rescue they can then:
- implement the more refined interventions,
- put time (perhaps 6-9 months) between business rescue and the sale of the business, and
- conclude the sale of the business on terms much more favourable to stakeholders than could have been achieved during the business rescue.
Avoiding conflict of interest
How is this done seamlessly and avoiding any conflict of interest on the part of the business rescue/turnaround team?
Before substantial implementation (conclusion of the business rescue), the business rescue practitioner (BRP) either appoints a new board or prepares to hand back control of the company to the original board. The BRP then files for substantial implementation and the company exits business rescue. Outside of business rescue, the board can then appoint the same turnaround team to carry out the final phase of the turnaround process: Business rescue to business as usual