How many companies are turned around after going into business rescue
A decision to place South African Airways into bankruptcy protection is no guarantee the airline will be able to keep operating – that’s if the experience of other financially distressed companies is anything to go by.
The government announced late Wednesday that the state-owned carrier should be put into so-called business rescue, in effect passing responsibility for a recovery plan to an independent administrator.
SAA has lost about R28 billion ($1.9 billion) over the past 13 years, leaving it reliant on bailouts to survive – a situation Finance Minister Tito Mboweni says can’t be allowed to continue.
The yet-to-be-appointed lead administrator will have to navigate a minefield of competing interests.
The government, labour unions, staff and creditors will all need to agree on a turnaround plan for the business rescue to work, according to Bruce Berry, chief executive officer of the Turnaround Management Association.
“This will be a very complex process and so we probably won’t see a plan for the next two or three months at least,” Berry said by phone from Johannesburg.
“The whole point of business rescue is to see the company get a better rate of return than liquidation and so it is not a recipe for the survival of the company.”
SAA will be faced with liabilities of as much as R50 billion in the event of liquidation, according to a 21 August report by the carrier on various scenarios that could materialize.
Data published in June by the Companies and Intellectual Property Commission, a unit of the Department of Trade and Industry, show that 3,298 distressed entities entered the business rescue process over the eight years through 1 June.
Of those, 1,275 businesses remain under administration, 400 were liquidated and 571 – just 17% – were substantially turned around. The balance of cases were either nullified, terminated or set aside by the courts.
Read: SAA to go into business rescue – here’s what happens next
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