Johannesburg – With informal business restructuring processes expected to rise in South Africa in the next 12 months, the role of chief restructuring officer (CRO) is likely to take more prominence, a study by Deloitte has found.
The CRO is responsible for leading the development of the turnaround plan, negotiating the terms of the restructuring on behalf of the company and delivering the plan.
The Deloitte study said these are time-consuming tasks that require specialist expertise and that 77% of respondents believed that the CRO role will be more important in the future.
“However, in the South African context, the appointment of CROs is infrequent and unconventional despite favourable feedback where they have been deployed.
“This could be due to a combination of factors, including resistance from management, the lack of suitable candidates, and the lack of awareness of the value a CRO could bring to the process,” the study reads in part.
“As the market for CROs is still in its infancy, survey respondents have indicated that it is difficult to find a suitably qualified CRO.”
Deloitte also found that some of the restructuring options expected to be employed in the next 12 months include the sale of non-performing or non-core assets, business rescue and amending and extending debt.
Other key findings of the survey showed that protecting the business and preserving employment rank as top priorities, while business continuing on a solvent and liquid basis was seen as the main goal, followed by a better return for creditors.
Deloitte also weighed in on the business rescue industry. While 71% of respondents believed that the uplift in fees requested by business rescue practitioners was fair, 44% of the respondents indicated that this was because business rescue was a complex process and the fees needed to reflect this.
Furthermore, 27% of respondents said the fees in the Companies Act were outdated. According to Statistics South Africa, 216 businesses were liquidated in March this year, 50% higher than the number recorded just a year ago.
Many others were in business rescue as Covid-19 continued to wreak havoc on the local economy. “Prior to 2011, distressed businesses would have been left with little option but to close, and be placed into liquidation, however, thanks to the newly introduced business rescue legislation, they now have another, more hopeful avenue.
The legislation now gives us (for the first time in South Africa) the opportunity to rescue businesses and keep jobs,” said Eric Levenstein, a director at Werksmans Attorneys.
He touched on the responsibility of directors faced with solvency issues. “Directors, both executive and non-executive, can be held personally liable if they don’t take meaningful steps to deal with financial distress.
“Directors who don’t take action when they are privy to reckless trading practices also open themselves up to personal liability,” he said.
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