“I think that if you look at the track record of business rescue in South Africa over the last 18 months, we’ve seen quite a good track record. Not every company is a case that’s going to ultimately end up being rescued in a business rescue. Some of those companies end up in liquidation,” Eric Levenstein, director and head of business rescue at Werksmans Attorneys, told CNBC Africa.
Levenstein added that Ellerines assets will now be reviewed for loss making issues, and will be restructured where the business rescue practitioner sees fit.
Unsecured lender [DATA ABL:African Bank] is however looking to sell off Ellerines, and the bank itself has suffered a number of challenges, resulting in it being recently placed under curatorship.
(READ MORE: African Bank's Ellerines applies for business rescue)
“It’s about restructuring the business, the debt, the management, the employees, the entire company, to provide a better business going forward together with all stakeholders,” Levenstein explained.
The business rescue practitioner would first need to understand the size of the debt, and who the role players are as far as creditors are concerned.
Once that is established, the practitioner can then start looking at the waterfall of payments that would flow from a business rescue. Business rescue can however be beneficial for certain parts of a business.
Other firms that have also applied for business rescue include 1time Airline and civil engineering firm Procech Khuthele, but both businesses had to undergo liquidation thereafter.
(READ MORE: Protech files for business rescue)
“It’s good news for employees [in that] if they are working during business rescue they get paid before anybody else. There might be retrenchment packages on certain areas, where they might decide to shut down employees or particular jobs, but the good stores or the good part of the business will be retained together with employees,” Levenstein added.
“At the end of the day, it is about retaining value, so if there are loss-making issues or loss-making divisions that need to be shed off, that are what the practitioner will do.”
The red flags that come up before a business applies for business rescue, according to Levenstein, are usually at a board level, and directors of a firm thereafter have to take an honest look at whether a business can continue to trade and if not, put the business into a business rescue or liquidation process.
“Business rescue provides a breathing space. It’s new law, it’s been around for two to three years now, but it provides opportunities that we never had prior to 2011. It’s good for South Africa, good for the economy and particularly good for the workforce,” said Levenstein.