COVID-19: Businesses seeking rescue at the tipping point, bubble is about to burst

The COVID-19 pandemic continues to wreak havoc on businesses and economies worldwide, and South Africa is no exception. This week, Comair became the latest casualty of the lockdowns, filing for business rescue shortly after South African retailer Edcon. The fear looms large that more businesses will follow suit as the country grapples with extended lockdown measures to curb the spread of the virus. To shed light on the escalating situation, CNBC Africa hosted a panel discussion with Dr. Eric Levenstein, Head of Business Rescue and Insolvency at Werksmans Attorneys, and PJ Veldhuizen, Managing Director of Gillan and Veldhuizen. Dr. Levenstein kicked off the discussion by highlighting the impact of the lockdown on business rescue filings. He emphasized that the prolonged closure of non-essential businesses had severely hampered revenue generation, forcing companies to operate with minimal income while grappling with fixed costs. As South Africa transitions back to work under relaxed lockdown levels, Dr. Levenstein forecasted an imminent surge in business rescue filings, attributing it to the financial strain accumulated during the lockdown period. Echoing Dr. Levenstein's sentiments, PJ Veldhuizen underscored the bleak outlook for businesses operating under level one and two lockdown restrictions. He pointed out the critical decision-making process companies must undergo to determine their financial viability in the coming months. With dwindling revenue streams and mounting financial obligations, many companies may find themselves compelled to opt for business rescue, liquidation, or restructuring to survive the economic downturn. As the number of business rescue filings is expected to escalate, the probability of successful outcomes for these companies comes into question. Dr. Levenstein elucidated that business rescue aims to either restructure a company for sustained solvency or facilitate a managed wind-down that maximizes returns for creditors. Drawing parallels to past cases like Stuttafords and Comet, he highlighted the varying approaches to business rescue outcomes based on the company's unique circumstances and pre-existing financial challenges. Turning to the contentious issue of business rescue fees, PJ Veldhuizen addressed recent calls by the Minister of Public Enterprises to slash practitioners' fees by 40% in the case of South African Airways (SAA). While acknowledging the economic strain on businesses, Veldhuizen emphasized that business rescue fees are regulated under the Companies Act, allowing for negotiated adjustments upfront. He cautioned against retroactively challenging fees incurred during the rescue process, advocating for transparent negotiations to align fees with the current economic climate. The economic crisis induced by the COVID-19 pandemic has thrust South African businesses into a precarious position, with the looming specter of escalating business rescue filings set to reshape the corporate landscape. As companies navigate the turbulent waters ahead, strategic decision-making, financial prudence, and stakeholder collaboration will be paramount in charting a path toward recovery and resilience in the face of unprecedented challenges.