High Street Auction Co supports South Africa’s “second chance economy”

• Business rescue is gaining momentum as South Africa embraces a “second chance economy” to support struggling companies responsibly.
• High Street Auction Co plays a key role in preserving value by managing asset sales early, strategically and transparently.
• Early intervention, clear planning and competitive bidding can protect solvency, maximise recovery and restore long-term business viability.

Right now, many South African businesses are struggling. Business owners are doing everything possible to keep their companies afloat but, sadly, there is a reluctance to ask for help. However, according to Jo Mitchell-Marais, national chair of the South African Restructuring and Insolvency Practitioners Association (SARIPA), it is time to overturn negative perceptions and support the “second chance economy” that could kick start a turn around.

This approach is underscored by Kelsie Barlow, who heads up the Turnaround, Restructuring and Insolvency division within the High Street Auction Company. Because the auction platform is often central to the rescue process, High Street works closely with business rescue practitioners (BRPs) from the outset as they craft plans to support the continued viability of businesses.

Mitchell-Marais admits that customers’ tendency to stop doing business with a troubled company is a challenge: “Unfortunately, business rescue does carry a negative stigma which is very disappointing. What you want is support for entrepreneurs, an economy that says it's okay to make a mistake and recognizes the value of a process that can protect, preserve some value and use it to strengthen the business so that it can come out the other end.

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“I love the name business rescue. It is what it says. Business rescue resides within our Companies Act rather than the Insolvency Act. That alone is positive. Both professionals and the media have created the negativity. It is the sensationalist stories that sell and not the successful ones. We must get positive outcomes out there, to overturn the stigma that one is a failure if one is in business rescue. It is responsible business ownership and leadership to seek professional help when you have a problem.”

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However, she does admit that the very fact that the process has been abused with struggling businesses only using business rescue as the last resort, has also led to the misconception of what can be achieved.

“Business rescue is not a silver bullet. One of the big challenges is that it requires a lot of planning and negotiation and stakeholder management to have a successful rescue.”

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Barlow agrees that a lot can be achieved via a more positive, carefully thought-out approach. The advent of business rescue has changed the auction space. Whereas a shrewd investor will automatically discount a distressed asset by 30% plus, business rescue does not require a label and the entire process is approached as a normal, mandated sales bringing together a willing buyer and seller and thereby retaining market value.

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“Liquidations are published and we must make certain disclosures due to specific terms and conditions. As the auctioneers, we take guidance from the BRPs regarding which assets we must take to market. We do that based on either their instructions or on the strategy. If we've come in early enough and submitted proposals and done assessments and evaluations, we are not depreciating market value as an insolvent asset. We start by discussing the potential buyer pool, the likely investors we approach from the outset with the business rescue practitioner,” she explains.

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Early involvement of the auctioneer in the business rescue process also adds flexibility from the get-go.

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“If BRPs identify that certain assets must be sold and include them in their plan, we can recommend and apply a variety of methodologies. We can do private auction or a sealed bid for higher value assets. The sale can be under a non-disclosure agreement,” she explains.

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Because creditors vote on whether to accept a business rescue plan, she adds that the High Street Auction Co can tailor make its processes – for example, it can extend acceptance periods. If, at the outset, a creditor doesn't agree with the proposed disposal of an asset, High Street can relook at that and find a strategy with which a creditor is more comfortable.

Through proactively approaching property investors and buyers on its large databases ahead of disposal, High Street can also structure deals so that the property changes hands, but a lease back arrangement is put in place to the benefit of both parties.

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“By the time we've got an offer, we've also made sure that our buyers have completed a due diligence. Often, on a private treaty basis, an offer is subject to a three-month due diligence which takes it off the market for 90 days. That means three months’ worth of lost momentum. Previous interested parties move on. There's no pressure to perform, to conclude deals. By doing the due diligence first, those who are registered to bid compete for this asset and an offer will not fall through because of finance. Sometimes on the private treaty market, where you release a property with a price, you cap it. It's very rare to have people competing and upping offers. By facilitating competitive bidding, we can extract maximum value.”

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Mitchell-Marais says that a strategy for an optimal asset disposal, an example of which could include the auction platform, is an important component of the entire business rescue process which rests on viability and determining what that business needs to operate rather than the nice-to-haves that do not necessarily generate liquidity.  

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“Ultimately, you’re striving to restore solvency, and you'll have a leaner, more efficient, more sustainable operation in the long run. If a business has survived, it might not be in the best shape, but there's a plan to get it there,” she says.