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Towards the end of 2019, Deloitte’s restructuring services business unit relaunched in what turned out to be a timeous commitment to supporting ailing businesses ahead of Covid-19. The unit, headed up by Jo-Anne Mitchell-Marais, has conducted important research into restructuring, revealing exactly why businesses should embark on this process at the first signs of financial distress. By Victoria Williams and Georgina Guedes
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inety-four percent of respondents to Deloitte’s Restructuring Industry Survey, carried out at the start of 2021 believe that the probability of a company being turned around is 50 percent or greater if restructuring advice is sought when the early signs of distress become apparent. This is a crucial aspect of restructuring – the sooner the process begins, the greater the chances of business success. The report states that within the restructuring industry, experts talk about the “demise curve”, which outlines the many scenarios in which companies may find themselves, from the early stages of poor financial health (where informal and consensual restructuring plans apply) to financial distress and insolvency (where the options available to the company decrease as they enter into formal negotiations typically led by creditors). A worrying trend identified in the survey results was that participants felt that companies are delaying seeking formal restructuring advice due to management teams and boards not believing that the financial distress warrants intervention (55 percent), and that management teams are concerned about being seen as
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incapable or incompetent (25 percent). This trend is even more concerning right now, when many more businesses are grappling with survival as a result of the ongoing Covid-19 business downturn. Of the respondents, 88 percent expect an increase in activity levels in the restructuring industry over the next 12 months. Despite this, the survey found that informal restructuring solutions, are preferred over formal solutions and the unfavourable stigma attached to companies in business rescue is a challenge to the success of the formal restructuring process. Between April 2020 and 31 October 2020, according to the Companies and Intellectual Property Commission (CIPC), there were 233 business rescue cases filed in South Africa including some major players such as Comair, Edcon, Virgin Money, Phumelela Gaming and House of Busby. Many of these companies were already struggling before lockdown sent the economy into its deepest recession yet. The manufacturing, wholesale and retail, real estate, accommodation and food service activities and construction sectors have been particularly hard hit. While no updated business res-
