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Turnaround Industry South Africa
 

Turnaround Industry South Africa

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Turnaround Industry South Africa

Turnaround Industry South Africa

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    Turnaround Industry South Africa Turnaround Industry South Africa Presentation Transcript

    • Jan van der Walt (Director: Certification) March 2010 The Turnaround Industry in South Africa and the Need for Certification Industry Structure, Driving Forces and Constraints The premier professional community dedicated to corporate renewal and turnaround management
      • 1. Turnaround and TMA-SA
      • 2. The turnaround industry in South Africa and the need for certification
      • 3. Turnaround professional body
      • 4. Turnaround professional qualifications and designations
      TMA-SA Presentations on Turnaround Certification
    • The Turnaround Industry in South Africa:
      • Turnaround industry structure
      • Driving forces
      • Constraints
      • The need for certification
    • Developments in the SA turnaround industry cover a number of areas Underperforming & distressed businesses and government structures Industry constraints The market for turnaround TURNAROUND INDUSTRY STRUCTURE Industry participants SA Turnaround Industry Industry driving forces
    • The turnaround industry consists of turnaround professionals of various disciplines Under-performing & distressed businesses and government structures Stakeholders: Industry participants formed TMA - Southern Africa in 2005. TURNAROUND INDUSTRY STRUCTURE Management Organisational Stakeholders Employees Shareholders Capital Market Stakeholders Banks Unions Suppliers Customers Government Host communities Product/Market Stakeholders Industry Association Turnaround Management Association – Southern Africa Industry Participants Lenders - Banks, Development Fund Institutions (IDC, DBSA) Financiers Investors - institutional investors, DFIs, private equity, venture capital Turnaround practitioners Service providers Turnaround consultants Accountants Attorneys Legislators Government SARS Legislation Faculty/Academic Research Financial advisors dti
    • The Turnaround Industry in South Africa:
      • Turnaround industry structure
      • Driving forces
      • Constraints
      • The need for certification
    • Government has gazetted new business rescue legislation to save jobs, and industry organised itself
      • Political driving forces:
      • Transformation of the liquidations industry:
        • Government of the opinion that the liquidation industry (2005):
          • Should give way to the national interests of job preservation and business rescue
          • “ And not merely to those of liquidators, secured creditors and their lawyers“ (Enver Daniels – DoJ” 
        • Chapter 6 of (Business Rescue) the Companies Act No. 71 of 2008 to to save companies and jobs
      • Organised turnaround industry:
        • Task Group for Organising the Turnaround and Business Rescue Industries:
          • Active May – September 2004; spawned ABASA and TMA-SA (see below)
        • ABASA (Association of Business Administrators of South Africa):
          • Formed in 2004 on request of DoJ to be the regulator of business rescue practitioners
          • In 2009 merged into the Turnaround Certification Governance Board of TMA-SA
        • Turnaround Management Association - Southern Africa:
          • Sent dti letter of intent to apply for its Certification Governance Board to be recognised as the regulatory authority of business rescue practitioners
      DRIVING FORCES - POLITICAL
    • Government has gazetted new business rescue legislation to save jobs, and industry organised itself - 2
      • Political driving forces (continued):
      • Organised turnaround industry (continued):
        • Productivity SA: The Department of Labour’s Social Plan allows for employers and workers to request assistance to prevent or minimise job losses when large-scale retrenchments are in the offing
      DRIVING FORCES - POLITICAL
    • South Africa has to fight poor business results as a result of the recession
      • Economic driving forces:
      • Rising performance standards:
        • Increased incidence of shareholder activism and private sector shareholders becoming less tolerant of mediocre performance
        • This trend extended itself to the public sector, where many turnaround programmes have been launched or are needed:
          • Municipalities in dire need of turnaround
          • SAA, SARS, Transnet, Denel, SABC, Land Bank, Dept. of Home Affairs
      • Global economic slowdown and credit crunch:
        • World-wide recession:
        • SA in recession too:
          • Economy contracted by 1,8% in 4 th quarter 2008, and by 6,4% in 1 st quarter 2009
          • SACCI and RMB/BRI Business Confidence Indices dropping (see next pages)
        • Government rescue plan for the SA vehicle industry and a textile firm
      DRIVING FORCES - ECONOMIC The need for turnaround is great!
    • Business confidence is decreasing (1) DRIVING FORCES - ECONOMIC
    • Business confidence is decreasing (2) DRIVING FORCES - ECONOMIC
    • Interest rates increased to curb inflation, but recently decreased to stimulate the economy DRIVING FORCES - ECONOMIC 5% -4,5%
    • Monthly and annual liquidations, however, are on the rise DRIVING FORCES - ECONOMIC
    • Job preservation is an important objective of new business rescue legislation
      • Social driving forces:
      • 23,5% official unemployment rate (only active job seekers)
      • 4 out of 10 South Africans are unemployed ( expanded definition i.e. including the unemployed not actively looking for work)
      • As a result, government drafted employee-friendly business legislation has been drafted:
        • Business rescue will save some companies from being liquidated
        • The ranking of employee claims are higher for companies that are liquidated following failed business rescue, than liquidation without being preceded by business rescue
      DRIVING FORCES - SOCIAL Unemployment is set to rise as a result of the global economic slowdown.
    • The turnaround industry’s education efforts are young – 5 years old
      • Technological driving forces
      • Turnaround education, conferences and publications:
        • Annual 5-day programme on managing a turnaround at Wits Business School
        • Monthly turnaround management lecture series presented by TMA-SA
        • Professor Neil Harvey’s book on turnaround management to be published
        • Turnaround web sites appearing
      • TMA-SA’s future turnaround certification programme:
        • Turnaround certification:
          • Body of knowledge, and exams in turnaround management, law (including Chapter 6), and turnaround-related accounting and finance
          • Experience requirements
        • Turnaround Certification Governance Board:
          • Standards Subcommittee, Academic Subcommittee
      DRIVING FORCES - TECHNOLOGICAL The turnaround industry is in dire need of education and training!
    • New business rescue legislation is expected to become the most important future driving force of the industry
      • Legal driving forces:
      • Judicial management a failure - hence new business rescue legislation to replace judicial management as contained in Chapter 6 of the Companies Act No. 71 of 2008
      • Business rescue = Chapter 6 turnaround as opposed to informal sector turnaround
      • Business rescue is a substantively non-judicial, commercial process similar to informal creditor workout (Riza Moosa, Deneys Reitz):
        • Yes, the process is formalised following the filing of a board resolution (or application to court to commence the proceedings) and each significant step in the process may allow intervention of affected parties by application to the court.
        • Yet this remains an engagement amongst the business rescue practitioner, affected persons (being shareholders, creditors and employees (individually or through their representative trade unions) of the company in devising a business rescue plan to rescue the company
      • Business rescue is a consultative and inclusive process involving all affected persons, in which each of these stakeholders is afforded an opportunity to participate and be consulted throughout the process
      DRIVING FORCES - LEGAL
    • New business rescue legislation is expected to become the most important future driving force of the industry
      • Legal driving forces (continued):
      • Section 128(1)(b) ‘‘business rescue’’ means proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for -
        • (i) the temporary supervision of the company, and of the management of its affairs, business and property;
        • (ii) a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and
        • (iii) the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders
      • The major benefits are:
        • Breathing space provided by moratorium, and right to cancel or suspend contracts
        • Cram-down of dissenting creditors, binding holdout
      • Chapter 6’s expected implementation date is 3 rd quarter 2010
      DRIVING FORCES - LEGAL
    • Business Rescue Process and Resolution:
    • A business rescue practitioner is a Chapter 6 turnaround practitioner operating in term of the Companies Act For underperforming and distressed businesses, planning and implementation of: This means that a Business Rescue Practitioner should preferably have top management and director experience. DRIVING FORCES - LEGAL Turnaround Practitioner
      • Stabilisation
      • Funding/Financial restructuring
      • Fixing in terms of:
        • Strategy
        • Structure/Organisation
        • Operations
      • Leadership
      • Stakeholder management
      • Project management
      Chapter 6 Turnaround Practitioner (Business Rescue Practitioner)
      • As for a Turnaround Practitioner, plus:
      • Has full management control of the company in substitution for its board and pre-existing management - section 140(1)(a)
      • Has the responsibilities, duties and liabilities of a director of the company, as set out in sections 75 to 77 - section 140(3)(b)
      • If Chapter 6 business rescue practitioners are regulated, minimum qualifications for admission will be required – Section 138(3)(b)(i)
    • There are further requirements to be appointed as a business rescue practitioner
      • Legal driving forces (continued):
      • Section 138(1): A person may be appointed as the practitioner of a company only if the person -
        • (a) is a member in good standing of a profession subject to regulation by a regulatory authority prescribed by the Minister in terms of subsection (2);
        • (b) is not subject to an order of probation in terms of section 162(7);
        • (c) would not be disqualified from acting as a director of the company in terms of section 69(8);
        • (d) does not have any other relationship with the company such as would lead a reasonable and informed third party to conclude that the integrity, impartiality or objectivity of that person is compromised by that relationship; and
        • (e) is not related to a person who has a relationship contemplated in paragraph (d)
      DRIVING FORCES - LEGAL The Certification Governance Board will apply to the Minister to be recognised as the regulatory authority of business rescue practitioners.
    • The Need for Turnaround and Certification of Turnaround Professionals:
      • Turnaround industry structure
      • Driving forces
      • Constraints
      • The need for certification
    • The industry is hampered by lack of education, experience and certification
      • Lack of education, experience and certification:
      • Little formal turnaround education available
      • Not many experienced turnaround practitioners
      • Yet everybody can claim to be a turnaround practitioner:
        • Urgent need for certification
      • If Chapter 6 business rescue practitioners are regulated, minimum qualifications for admission will be required – Section 138(3)(b)(i)
      CONSTRAINTS The turnaround industry is in dire need of education and training!
    • Lack of finance represents a major constraints to growing the turnaround industry
      • Lack of turnaround private equity finance:
      • Distressed firms that exceed their borrowing capacity need equity investment
      • No specialist turnaround private equity firms in SA
      • Those that do finance turnarounds tend to focus on underperforming rather than distressed companies
      • Institutions in SA do not include distressed situation investing in their private equity portfolios
      • Lead-time for due diligences tends to be too long for a company requiring urgent refinancing:
        • The Chapter 6 business rescue practitioner will have 25 days to prepare the turnaround plan
      CONSTRAINTS Lack of turnaround private equity funding will effect Chapter 6 adversely.
    • Lastly, compared to overseas, the industry suffers from a number of legal constraints
      • Legal constraints:
      • No effective business rescue legislation until Chapter 6 is implemented
      • Any retrenchment of any such employees contemplated in the company’s Chapter 6 business rescue plan is subject to section 189 and 189A of the Labour Relations Act, 1995 (Act No. 66 of 1995), and other applicable employment-related legislation:
        • For instance, if a distressed business is sold, all employees from part of the deal – which cause deals to flounder
        • No retrenchment until a business rescue plan has been approved, which can take 40 days
        • Temporarily good for unemployment, bad for business rescue compared to Chapter 11 in the USA for instance
      • Policy of SARS (SA Revenue Services):
        • Not allowing past and assessed losses as overseas
        • Seen as a stumbling block preventing entrepreneurs and financiers stepping forward to participate in business rescue
      CONSTRAINTS
    • The Need for Turnaround and Certification of Turnaround Professionals:
      • Turnaround industry structure
      • Driving forces
      • Constraints
      • The need for certification
    • There is a dire need for qualified turnaround professionals
      • A growing turnaround market in SA, fuelled by the global economic slowdown:
        • Recession; decreasing business confidence
        • Liquidations on the rise
        • Increased unemployment
      • The industry is hampered by lack of education and experience
      • Lack of certification makes it difficult to determine who are qualified
      • Chapter 6 requires business rescue practitioners, that may be regulated
      • Benefits of certification:
      • Provides evidence of an individual’s commitment to the turnaround industry
      • Attests to a level of expertise that non-certified professionals may find difficult to prove
      • Attests to verified qualifications and experience, and where applicable, that the Certification Governance Board's three exams in turnaround management, law (including Chapter 6) and turnaround-related finance/accounting have been passed
      THE NEED FOR CERTICATION
    • Questions?
      • Register as a member:
      • www.tma-sa.com/members/tma registration.asp
      • Contact details for Susanne Braatvedt (Administrator):
      • Tel.: 082 950 2624
      • Fax: 086 592 3619
      • Web site: www.tma-sa.com
      • Email: [email_address]
      Turnaround Management Association – Southern Africa Director Certification: Jan van der Walt