‘Business rescue’ appeared too late on 1time’s radar

2012-11-10 14:20

Budget airline simply ran out of time to implement a turnaround strategy to return to profitability and save jobs, writes Andile Ntingi

Business rescue, introduced in May last year following amendments to the Companies Act, makes provisions for financially distressed companies to be given breathing space to turn around their operations before they are liquidated.

1time applied for business rescue in August in a bid to avert liquidation, but its efforts came unstuck after it failed to secure funding to keep its head above water. The airline became one of the nearly 20 000 businesses liquidated every year in South Africa.

Business rescue is meant to allow a company to implement a turnaround strategy to return to profitability and to save jobs.

In the past, once liabilities exceeded assets, the courts were quick to approve the liquidation of companies. Creditors and shareholders scrambled to sell assets as fast as they could to salvage whatever value could be picked from the bones of a dead business.

Under the old laws, courts replaced management with judicial managers, in many instances liquidators, whose main concerns were to wind up companies and redistribute the spoils between secured creditors and shareholders.

Employees were usually last in the queue to get their salaries after liquidators, lenders and shareholders had received their shares.

But the new laws now treat workers and suppliers as creditors too, giving them a say in how a company is rescued or liquidated.

One of the key tenets of business rescue is the appointment of an independent supervisor or turnaround strategist, who drafts a rescue plan with management.

Such a person is required to turn the business around in three months. But some commentators have argued three months is too short a period to rescue a failing business.

1time simply ran out of time and was forced to go into liquidation as it struggled to cope with high fuel prices, taxes and an old fleet of fuel-guzzling aircraft.

It could not close the gap between its liabilities and assets in time.

There have been concerns the pool of skilled turnaround strategists in South Africa is small, compared with the US and the UK, where the business-rescue concept has been around for some time.

In some cases, business rescue comes in when it is too late and virtually impossible to save a business.

It looks as though 1time was in that situation. Its business had deteriorated to such an extent that it was impossible for it to continue as a going concern.

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