Category

Business

Directors and Business Rescue in the Time of COVID-19

By | Business, Company / Corporate / Compliance

“A stitch in time saves nine” (wise old proverb)

The COVID-19 pandemic and the resultant lockdown have opened up new avenues of profit for some businesses, but they have also subjected many others to the spectre of business failure. 

Unfortunately we can expect the level of bankruptcies to surge for some time to come, and the domino effect will multiply the numbers until our economy turns the corner.

If financial distress looms for your own company, bear in mind the very onerous duties imposed on directors by the Companies Act. One of those duties is to avoid any form of “reckless trading” or “trading in insolvent circumstances”, and if you drop the ball on that one you risk personal liability, claims for damages, and even criminal prosecution.

What action should you take? There is a lot at stake here so specific professional advice is indispensable, but it is essential to face realities and to take decisive action quickly. Your legal options are likely to be either liquidation or business rescue. Let’s compare them…

Business rescue v liquidation

Liquidation: If your company is terminally ill you will probably have no option but to put it out of its misery by applying for liquidation. In that event a liquidator is appointed to oversee the winding-up of the company, to sell its assets and to distribute the net proceeds to creditors. Liquidation’s big advantage is in providing an orderly winding up of the company’s affairs, but there will be few winners emerging from the process.

All stakeholders are likely to lose out in a liquidation scenario. Shares become worthless, you lose your directorship, employees lose their jobs and, although they have preferent claims for outstanding pay, leave etc, these could well be worthless. Creditors holding some form of security aside, other creditors (which would include you if you have a loan account) are left with concurrent claims – which are probably worthless too. 

To top all that off, if you signed suretyship for any claims, you will be personally liable for them.

Business rescue: Business rescue on the other hand is designed to restructure the company’s affairs and business “in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.”

Either way all stakeholders stand to benefit, including you as a director, shareholder and/or loan account creditor. Your staff have a better chance of keeping their jobs, suppliers have a better chance of retaining your company as an ongoing customer, and the economy benefits from avoiding another business failure (SARS in particular will be happy to retain your company as a taxpayer!).

The success rate for business rescues is not high, but even if it is partially successful it is likely to be better than liquidation. 

There have also been concerns expressed about the costs of business rescue, and although these concerns have been disputed, cost is perhaps a factor to be put in the balance with all the other factors mentioned above when deciding between the two options.

How does it work?

In a nutshell (this is of necessity just a brief overview of what can be a very complex subject) –

  • Normally you would voluntarily place the company into business rescue with a board resolution; alternatively an outside stakeholder can apply for a court order (which you could oppose). 
  • A business rescue practitioner (often referred to as a “BRP”) is then appointed to take full management control of the company in substitution for the existing board and management, and to investigate the company’s affairs in order to “consider whether there is any reasonable prospect of the company being rescued”. The company is in the interim protected from legal action by creditors via a moratorium.
  • As a director you “must continue to exercise the functions of director, subject to the authority of the practitioner”, plus you have “a duty to the company to exercise any management function within the company in accordance with the express instructions or direction of the practitioner, to the extent that it is reasonable to do so”. In other words, you must assist and cooperate with the BRP as required.
  • The BRP convenes a first meeting of creditors to advise whether there is a reasonable prospect of rescuing the company.
  • If rescue seems feasible the BRP will then formulate a business rescue plan and present it to another meeting of creditors for consideration and voting. 
  • If the business rescue plan is adopted and successfully implemented, the company is returned to the marketplace as a viable business. 
  • If it turns out that there is no prospect of rescue or if the business rescue plan is rejected without any extension of the business rescue proceedings, the court can convert the rescue proceedings into a full liquidation. It can also in some circumstances set aside the business rescue resolution or court order.

Timing is everything!

“A stitch in time” really does make sense here. Your chances of rescuing the business are statistically (and logically) much greater if you take action as quickly as possible after the threat of financial distress first rears its ugly head. 

As to the legal position, our courts have put it this way: “… it is clear that the business rescue procedure is intended to be used at the earliest possible moment, i.e. when a company is showing signs of pending insolvency, but where it has not yet reached the stage of actual insolvency.”

Moreover the longer you leave it, the more likely you are to find yourself personally in trouble with the law and the higher the chance of all stakeholders losing everything.

Bear in mind that access to financing will be critical here, as will active support from major creditors both during the business rescue proceedings and in the longer term. 

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

POPIA’s Deadline is 30 June 2021 – Ignore the “Fake Headlines” But Start Planning!

By | Business, Information Technology Law / Cyberlaw

At long last the main provisions of POPIA (the Protection of Personal Information Act) have been gazetted, and they will commence on 1 July 2020. That means that the one year transitional period will expire on 30 June 2021

Don’t panic just yet, and ignore the many “fake headlines” in the media implying that you are at immediate risk of non-compliance, but at the same time don’t leave this to the last minute! Preparing for compliance is going to be a time-consuming affair, almost all South African businesses will need to comply, and the penalties for not doing so will be very severe indeed – 

  • You risk administrative fines of up to R10m;
  • You could face criminal prosecution (with up to 10 years’ imprisonment);
  • You could be sued for millions by anyone whose data has been compromised, and this is an instance of strict liability” in that no “intent or negligence” on your part need be proved;
  • The loss of trust and the adverse publicity resulting if your data breach goes public could be devastating.

In future issues we’ll let you have a lot more practical advice on how POPIA will affect your business, and on the steps you will have to take to protect yourself from the dangers of non-compliance, but for now get started with this first planning step: Ask yourself what personal information you hold, where you hold it, who has access to it, and how secure it is. 

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Website of the Month: The Mental Battle of Running a Small Business in Lockdown Level 3

By | Business, Website of the Month

“This Too Shall Pass. It might pass like a kidney stone, but it will pass” (Unknown)

Entrepreneurs and the small businesses they run are bearing much of the brunt of our deepening economic woes. Some SMEs have prospered, others have sunk – most of us have just battled on, preparing for and dreaming of happier times to come.

In “The mental battle of running a small business” on Daily Maverick Nic Haralambous shares his thoughts on how to stay mentally fit in these trying times with these wise words: “Your emotional wellbeing is an imperative part of your success and the survival of your business”.

P.S. There may just be some light at the end of the tunnel here – keep an eye on the New York Times “Coronavirus Vaccine Tracker” here. Hold thumbs! 

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Your Website of the Month: Lockdown Advice for Entrepreneurs

By | Business, Website of the Month

“The scale of the national COVID-19 lockdown is unprecedented in living memory. The repercussions – personal, professional, national and international – will reverberate for years to come. As entrepreneurs, we need to be making the right decisions for right now to ensure that our businesses and our people’s livelihoods do not become another casualty of the virus.”

At date of writing it is still unclear to what extent the Lockdown will be relaxed in each Province, but regardless of timelines the COVID-19 pandemic and the crisis it has landed us all in are not going anywhere in a hurry.

Businesses and perhaps SMEs in particular face both enormous challenges and many new opportunities. Some good solid advice on how they can navigate these stormy seas comes from Allon Raiz of Raizcorp in the form of a series of articles under the heading “Lockdown advice for entrepreneurs” here. To date six articles are available –

  • “Get to rational quickly”
  • “Building an opportunity matrix”
  • “Scenario planning as a vital tool”
  • “Building an exploded resources list”
  • “Creating a small list of big questions”
  • “Embrace your X”.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

COVID-19: Small Businesses, Employment Laws, and Survival Support

By | Business, Employment and Labour Law

“The secret of crisis management is not good vs. bad, it’s preventing the bad from getting worse” (Andy Gilman)

We can only guess at how the COVID-19 coronavirus outbreak will end, but let’s all take whatever concrete steps we can right now to lessen its impact on our personal lives, on our businesses, and on our country. 

One of those steps is for businesses to find ways of continuing to operate as normally as possible, given of course the exceptional times we are living through. And as employers, many businesses will find themselves facing some novel challenges, particularly during the National Lockdown…

Small businesses – the new relief programs

A whole raft of support and relief programs has been announced. Some still need to be finalised and the situation is changing daily, so keep an eye on the media and incorporate into your business survival plan all relief channels you think may be open to you. At date of writing, these are the main ones –

  • The DSBD (Department of Small Business Development) will provide relief to businesses in several categories. Call the DSBD on its 0860 663 7867 hotline or email info@dsbd.gov.za to see if you quality. Apply at https://smmesa.gov.za/.
  • The DTI (Department of Trade and Industry) is set to provide relief for large businesses as well as small. Keep an eye on the DTI’s website for developments.
  • The Solidarity Fund has been set up with R150 million from the government to, amongst other things, assist and support those affected (contact details here).
  • Employer and employee relief: Access the “Easy Guide for employers on COVID19” here and read up on the “Temporary Employer/Employee Relief Scheme” and UIF benefits from a special R30bn National Disaster Benefit Fund. Confirmation that employees who fall victim to the virus will be paid through the Compensation Fund – details here.
  • Other funds and relief measures: The Rupert and Oppenheimer families have pledged R1 billion each to help struggling small businesses and employees – the details are not available at date of writing. Read the President’s speech here for more on planned or implemented measures involving tax relief, changes to the Competition Act, a fund to support the tourism sector, and more.

Employers – comply with the law! 

From a legal perspective, employers in particular need to have a solid action plan in place to ensure that they comply with all our many employment laws, which will continue to apply as is, unless and until government announces any new measures to the contrary.

Detailed planning will not be easy. With the situation changing daily, keep informed of developments and keep all your plans flexible.

In any event there is unfortunately no “one size fits all” answer to questions like “Can I dismiss an employee who tests positive for COVID-19?”, “Can my employees insist on working from home?”, “Can I start retrenching?”, “Can I prohibit employees from travelling abroad for personal reasons?”, “What steps must I take to ensure a safe working environment and what rules can I put in place to underpin them?”.

The list is endless and the answers to these questions will depend upon your Lockdown exemption status, your particular employment contracts, business circumstances, operational needs, and so on. 

Your employee action plan

We need to get used to constant change and uncertainty, but there are steps you can take now to plan for as many eventualities as possible – 

  1. As a start, incorporate into your “COVID-19 Business Plan” all the possible scenarios you can think of, both during the National Lockdown and after it ends.
  2. Then brainstorm – with your employees where you can – a list of all the employment-related problems you and they might face. Use that in turn to make a list of questions you will need the answers to under each scenario.
  3. Then, make sure you are fully prepared to deal with whatever may come your way by taking specific legal advice on each and every one of those questions. 

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Website of the Month: COVID-19 – Entrepreneurs and Your Growth Opportunities

By | Business, Website of the Month

“Never let a good crisis go to waste” (Winston Churchill)

The COVID-19 coronavirus crisis will, like all crises, eventually give way to economic and societal recovery. 

Even before that inevitable upturn actually sets in, entrepreneurs should remember that times of great risk and challenge are also times of great opportunity. So get your team together now and brainstorm what new needs and new niches you can fill. Witness for example the “remote destination” businesses like game lodges now offering safe and luxurious havens for those wanting to self-isolate and to practice social distancing far from the city hotspots. That’s a win-win for everyone – businesses, their employees, their clients, and their suppliers.

And when a sustained recovery does make its welcome appearance, make sure that you are way ahead of the pack by using this current time of fear and negativity to maximise your planning. What will the recovery look like? How will you take advantage of it? What staff and resources will you need?

Get off to a good start with “Growth opportunities for small business in SONA and the Budget” on the Catalyst Magazine website which highlights some of the many opportunities still open to businesses big and small –

  • The Infrastructure Fund
  • The Tourism Equity Fund
  • The African Continental Free Trade Area
  • Incentive Programmes For Small Businesses.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

POPIA’s One Year Deadline to Start Running on 1 April?

By | Business, Information Technology Law / Cyberlaw

Will the main provisions of POPIA (the Protection of Personal Information Act) really commence on 1 April 2020 as media reports suggest, or is this just another case of Crying Wolf? This time it seems it may be the real thing, with the Information Regulator having formally requested the President to declare the commencement date.

If that does indeed happen (still unclear at date of writing), any organisation that needs to comply with POPIA will have a one year transitional period expiring on 31 March 2021 to get their house in order. 

Watch this space…

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Employees: Your New Rights to Paternity and Parental Leave

By | Business, Employment and Labour Law

“People who say they sleep like a baby usually don’t have one” (Psychologist Leo J Burke)

It has taken over a year of confusion and delay around when new changes will be implemented, but finally your extended rights to parental leave and to an Unemployment Insurance Fund (UIF) claim have fully commence.

Here’s an update/refresher –

  • New mothers are still entitled to 4 consecutive months’ maternity leave.
  • New “parents” (which would include fathers and same-sex partners) are entitled to 10 consecutive days’ “parental leave”.
  • An adoptive parent of a child under 2 years old is entitled to 10 consecutive weeks’ adoption leave. Where there are two adoptive parents, the other is entitled to only the 10 consecutive days’ “parental leave” (the two adoptive parents should decide between them who gets 10 weeks and who gets 10 days).
  • Commissioning parents in a surrogacy agreement have the same entitlements as adoptive parents.
  • The law does not force your employer to give you paid leave – the above entitlements are for unpaid leave only. So unless your employment contract entitles you to paid leave you are limited to claiming from the UIF (assuming you are a qualifying contributor). That will give you 66% of your salary subject to a standard earnings cap.

And a note for employers: if you haven’t already done so, take advice now on reviewing your maternity and parental leave policies.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Your Website of the Month: Become a Client Whisperer

By | Business, Website of the Month

“It takes seven times more money, effort and time to get a new client than it does to keep an existing one”

We’ve all heard of “dog whisperers”, “cat whisperers”, “horse whisperers”, even “elephant whisperers” – but “client whisperers”? Is that even a thing?

It is, and with your clients being the lifeblood of your business, retaining them is fundamental to its profitability and success. For a take on how to do that – to your mutual benefit – read “The Client Whisperer” on the CleanFax website.

The article specifically addresses carpet cleaning businesses but the principles it espouses, and the advice it gives, are universal. They apply to every type of business you can think of. 
So protect your client base – become a client whisperer!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Before You Start a New Small Business in 2020…

By | Business

“Just do it!” (Nike)

You and your fantastic business idea can’t wait to chuck up the 9 to 5 job and launch your own new venture. 2020 here we come! But is this the right time to do it?

Of course no one knows for sure whether 2020 will see our economy glide happily into recovery mode or continue bumping along in the mud at the bottom. But one of the great things about starting a new small business is that it doesn’t really matter. Provided, that is, that you plan carefully and remain agile and adaptive to whatever may come our way.

Here are some thoughts on how to get that planning underway…

1. Line up the right professional help

Quite apart from all the many legal, accounting and tax-planning issues you will face, bouncing your ideas off your professional advisers is a no-brainer here. Just do it before you put too much time, effort and money into your new venture. 

More on that below…

2. Ask yourself “Am I an entrepreneur?” 

Not everyone is suited to the cut and thrust of running a small business. On one side of the coin you can look forward to a good dose of exhilaration and excitement, but on the other you are in for more than your fair share of work-life balance challenges, risk, fear and stress. The personal and financial rewards can be enormous, but the spectres of disruption, decline and failure will haunt you at every turn (if they ever stop haunting you, something’s wrong – nothing is certain, and nothing lasts forever!).

Bring your family in on this from the very start – they will be walking this road with you every step of the way! 

3. Quiz yourself online

Spend 10 minutes answering the questions in an online quiz like the Business Development Bank of Canada’s “Entrepreneurial potential self-assessment” on its website – then book appointments with your professional advisers to see if they agree (back to 1 above). 

4. Decide on a business structure upfront

This is critical; the tax, financial, legal and practical issues of getting it wrong can be substantial. And whilst you can change from say sole proprietorship to a company/trust structure down the line, the consequences are best avoided. Rather get it right from the outset with professional advice (1 above again).

5. Figure out the financing

Whether you will need a lot of money upfront or not, your business idea is a non-starter without finance. First, figure out how much you will need – crowdfunding site Kickstarter has a useful planning checklist on its “Funding” webpage.

Next think about where that money is coming from. Can you finance the startup yourself; and if you can, should you? Will you ask friends and family or a bank for a loan? Perhaps you can find a rich partner or an angel investor? Crowdfunding may be worth a look – apart from Kickstarter and many others like it, consider local platforms – Google “Crowdfunding in South Africa” for a list, and read Jumpstarter’s “Crowdfunding in South Africa!” here. The State also comes to the party here – read “Where do I get assistance to establish a small business?” on the South African Government Information website for a list.

Last but not least, specific professional advice is once again a no-brainer. 

6. Build a strong, dynamic team

Your staff will be the backbone of your business so whether your team will be big or small, in-house or out-sourced, management-heavy or mostly there in a support function, put your heart and soul into choosing wisely. Recruit wherever you can from diverse backgrounds and a range of specialties for a dynamic team that is agile and adaptable, and has the creativity that flows from constant cross-pollination of ideas.

7. Market, market, market!

No matter how brilliant your product or service, it is worth absolutely nothing to you until your target market pays you for it. Which it will only do if it knows what you do and how you benefit them. As obvious as that sounds a lot of startups fail for lack of planning around how to achieve the necessary exposure.

With all the marketing noise bombarding us all these days you have to find a way to be heard – prioritise marketing or fail.

8 . For a company get cracking with Biz Portal’s ‘One-Day, One-Stop’ online platform

The CIPC (Commission for Intellectual Property Commission) has just launched its “Biz Portal” online business registration platform. In collaboration with SARS, UIF, the Compensation Fund, B-BBEE Commission, the .za Domain Name Authority, and banks, the platform says it will help you register your new company in just 1 day (it normally takes 40!), plus assist with tax registrations, domain names, bank account, BEE certificate and so on.

Time will tell how effectively this (very welcome!) new initiative will actually work, but remember that by its very nature it cannot give you that essential individualised input we keep mentioning. Take professional advice as above before using this platform!

9. The bottom line: Just do it!

To quote Richard Branson: “Screw it – just do it!” 

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews