What is Financial Distress? The Section 128.1 of the Companies Act makes it very clear that if you are not able to pay all of your debts as they become due and payable within the immediate ensuing six months, you are in fact “financially distressed”. This means that unless you file for liquidation or business rescue, it could be considered that you are trading recklessly. These debts that the Act refers to includes all debts such as your statutory obligations. Not paying SARS is further considered a criminal offence and the directors of such a company could be charged criminally. CPM Services Pat Pattinson

1. EARLY WARNING SIGNS
OF
“FINANCIAL DISTRESSED”
Pat Pattinson

2. EARLY WARNING SIGNS
WHAT IS “FINANCIALLY DISTRESSED”
Section 128
(i) it appears to be reasonably unlikely that the company will be able to pay all of its
debts as they become due and payable within the immediately ensuing six months; or
(ii) it appears to be reasonably likely that the company will become insolvent within
the immediately ensuing six months;

3. EARLY WARNING SIGNS
WHAT IF “FINANCIALLY DISTRESSED”
Section 129.
Company resolution to begin business rescue proceedings
(a) the board of a company may resolve that the company voluntarily begin
business rescue proceedings and place the company under supervision, if the board has
reasonable grounds to believe that—
(a) the company is financially distressed;

4. EARLY WARNING SIGNS
Section 218
(2) Any person who contravenes any provision of this Act is liable to any other
person for any loss or damage suffered by that person as a result of that contravention.
WHY KNOW IF “FINANCIALLY DISTRESSED”

5. EARLY WARNING SIGNS
1.Utilisation of Overdraft from Bank
2.Debtors v Creditors days
3.Specials becomes the order of the day
4.Reducing Margins
5.Growth in Turnover but no profit

6. EARLY WARNING SIGNS
UTILISATION OF OVERDRAFT FROM BANK
• Meant as a short term solution
• Used to cover shortfalls
• Unable to survive without
• Replaces debtors

7. EARLY WARNING SIGNS
DEBTORS V CREDITORS DAYS
• Creditors Payment depending on OD
• Debtors days surpasses Creditors Days

8. EARLY WARNING SIGNS
SPECIALS BECOMES THE ORDER OF THE DAY
• Running Specials is the biggest form of Marketing

9. EARLY WARNING SIGNS
REDUCING MARGINS
• Cost Cutting becomes the main sales driver
• Turnover becomes more important than profit

10. EARLY WARNING SIGNS
GROWTH IN TURNOVER BUT NO PROFIT
• Constant or Growing Turnover with reduced margins
• Sales v Cost of sales

11. EARLY WARNING SIGNS
NOW WHAT
As an entrepreneur it is your responsibility to make use of all of
the tools available to you. This includes the service of turnaround
Professionals.
You need to take the steps needed to save your business in the long run
Irrespective of how uncomfortable it is now.

12. EARLY WARNING SIGNS
Pat Pattinson
• TMA-SA
• www.tma-sa.com
• CPM Services
• www.cpmservices.biz

13. Early Warning Signs of Financial Distressed
Pat Pattinson
INFOLOAD 2016