Business rescue trouble in South Africa

The Companies and Intellectual Property Commission (CIPC) has warned that business rescue practitioners (BRPs) in South Africa are at risk of losing their licences due to tardiness and poor administration.

The commission has gazetted three circulars warning BRPs that their licence renewals will be rejected if their filings are not up to date or if their qualifications do not meet the necessary requirements.

CIPC said that it has observed a “significant number” of BRPs not complying with the sections of the Companies Act.

The Act states that if a company’s business rescue has not ended three months after the proceedings start, the BRPs must prepare a report on the progress of the proceedings at the end of each month until the process is complete.

This has not been happening, CIPC said.

“In an effort to enforce proper compliance…all practitioner licence renewal applications will be rejected, pending the filing and updating of business rescue proceedings status reports with the commission,” it said.

Any BRPs not compliant with the Act will be prohibited from renewing their practitioner licences until all reports are brought up to date and filed, it said.

To aid BRPs in filing, CIPC issued a second circular regarding the automation of filing status reports, including some changes.

The group said that effective September 2024, it launched significant automation processes for status reports, terminations, and substantial implementation applications.

“These services are available on the new E-Services portal, and this is the only available platform that will be used for filing these applications,” it said.

Notably, filing these applications via the [email protected] email address will not be processed, it said.

In a third circular, the commission also reminded BRPs of the qualification requirements for licence approval.

This includes a relevant bachelor’s degree at National Qualification Framework (NQF) level 7, endorsed by the South African Qualifications Authority (SAQA). Foreign qualifications should be recognised, evaluated, and endorsed by SAQA.

“Applications for licensing that do not meet the criteria will be rejected,” CIPC said.

BRPs and business rescue processes are one of the biggest lifelines for struggling businesses in South Africa, and they have gained some key prominence over the past five years in the wake of the Covid-19 pandemic between 2020 and 2022 and the load-shedding crisis that crushed the economy thereafter.

In 2024 alone over 1,400 businesses in the country were liquidated – the sad outcome of those companies that could not be saved.

However, several big-name businesses entered into business rescue and managed to either be saved, or prolonged enough to find some kind of positive outcome for the brands, services and employees.

One of the more recent business rescue successes is Westpack Lifestyle, which voluntarily initiated business rescue proceedings in May 2024 as it was financially distressed and unable to pay its debts when they became due over the following six months.

A final offer to rescue the business was accepted in October, saving over 1,100 jobs, 30 corporate stores, 40 franchise stores and the overall West Pack brand.

AutoZone is another BRP success story. The group is the largest privately owned and leading distributor of auto parts, spares, and car accessories in South Africa, with approximately 169 retail stores and 7 QSV stores.

The group entered business rescue proceedings in July 2024 amid debt servicing struggles. JSE-listed investment group Metair announced its plan to acquire AutoZone for R290 million in November 2024.

Unfortunately, not all companies survive business rescue proceedings.

Solar company Hohm Energy and JSE-listed Ellies Holdings entered liquidation in 2024 after their respective business rescue proceedings failed to save the companies.

Retailer Drip Footwear also entered liquidation in September and sports retailer Frame Leisure Trading—which operates The Cross Trainer— also entered liquidation proceedings in October as the business rescue practitioners could not gather the support of suppliers and landlords.

Read: Over 1,400 businesses in South Africa shut their doors in 2024 – these were the hardest-hit