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Law firm says going into business rescue will help distressed miners avoid liquidation

Law firm Hogan Lovells partner and head of business restructuring and insolvency Keith Braatvedt discusses business rescue proceedings as a viable option during prolonged strikes.

27th June 2014

By: Chantelle Kotze

  

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The prolonged wage standoff between the Association of Mineworkers and Construction Union and platinum producers Anglo American Platinum, Impala Platinum and Lonmin, which Mineral Resources Minister Ngoako Ramatlhodi is confident will be resolved soon, has had a major economic impact on the country and has cost the platinum majors a combined R21.9-billion in lost revenue.

Law firm Hogan Lovells says if the hoped-for settlement is not reached soon, miners may face potential liquidation of their marginal mines.

Hogan Lovells partner and mining head Warren Beech believes that a well developed and properly implemented business rescue plan can go a long way towards moving mines from being in the inevitable situation of liquidation to a business rescue scenario.

The law firm’s partner and head of business restructuring and insolvency, Keith Braatvedt, says companies can go into business rescue when the company is in financial distress.

Financial distress occurs when the company is unable to pay its debts when they are due or if the board of directors reasonably expects that the company will, at any time during the next six months, not be able to pay its debts on the due date.

He states that business rescue proceedings are commonly implemented to enable a company to survive and to subsequently ensure that employees’ jobs are saved.

Further, employees and/or trade unions can also bring business rescue proceedings against a company if wage demands are not met, as businesses are finding it increasingly difficult to afford the increases.

The objective of business rescue is to maintain the inherent value of the business by gaining “breathing space” and restructure the company during that time, as opposed to liquidation, in which the objective is to wind up the company by selling its assets, paying the liabilities and declaring a dividend to concurrent creditors, of which the latter generally does not happen, says Braatvedt.

Beech notes that, while there are many positives that may stem from business rescue proceedings, such as providing a structured environment for an objective third party to see if the mine is viable and if it can be rescued, it must firstly be assessed whether the mining industry, with its unique set of challenges, is a good environment for business rescue.

Braatvedt says, generally, there has been a lot of failures in business rescue proceedings, as business rescue needs postcommencement finance and a good product to ensure its success.

He says business rescue cannot help when “the end of the road has arrived and everything else has been tried”. It tends to start helping only when a proper assessment of financial, commercial and compliance issues has been made. These include identifying and analysing balance sheet strengths, profits, competitiveness, fundamental business models, risk issues and comparative industry outlook.

Once the assessment and interpretation have been undertaken, the last step is to take action. A business rescue practitioner is chosen to develop a plan for the rescue of the business in consultation with affected parties, such as creditors, employees, shareholders and trade unions.

Should the plan be accepted by the affected parties, the practitioner implements the business rescue plan in terms of Sections 128 to 155 of Chapter 6 of the Companies Act No 71 of 2008.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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