The process of appointing liquidators has for many years been based on the votes of creditors in particular matters in that the liquidator nominated by the the majority of creditors in value and number got appointed to that particular matter by the Master of the High Court, the supposed “watchdog” over liquidators. This has changed somewhat lately in that liquidators from the ranks of Previously disadvantages individuals are now being joined in each and every matter. This has been perceived as a threat to well established firms of Insolvency practitioners with huge overhead structures The effect of this is that the liquidator’s ultimate remuneration, which, in most cases, is only paid at best some 18 months after having commenced with a matter, will now be halved as the remuneration of a liquidator is based on a “commission structure” being a percentage of the assets realised in a particular matter referred as a tariff regardless of how many liquidators are appointed to a matter.

The perception is however further that the so-called liquidation industry in South Africa is a massive fee spinner and that it liquidators earn huge fees for very little effort. Nothing could be further from the truth. Those who advocate that school of thought do not bear in mind that liquidators need to employ very skilled staff consisting of professionals such as attorneys and accountants and that such professionals must be provided with enough of an incentive to remain in the liquidation industry. In a judgement handed down in the Highest Court of Appeal in April 2004 the Court held that the principle of “swings and roundabouts” which was with us for almost a hundred years has been abandoned. This principle provides that liquidators sometimes earn little fees for a huge amount of work and the other war around. It has been determined in the industry that it costs a liquidator between R25 000 and R 30 000.00 to finalise a matter where they often earn a minimum fee of R 2500.00. In this judgement the Court held that the Master is no longer free to choose whether or not to tax (“determine”) the liquidator’s remuneration and that fees must be taxed in accordance with the tariff but having done so the Master has a flexible discretions to increase the fees if there is “good cause” to do so. It was said by Court that the remuneration to which a liquidator is entitled is remuneration for work or services rendered should not be a set commission but that it must be reasonable.

The concept of ‘good cause’ is very wide but may certainly include aspects such as:

• the complexity of the matter in question
• the degree of difficulty encountered by the liquidator in the administration thereof
• the amount of work done by the liquidator
• the time spent by him or her in the discharge of the duties involved,and

There appears to be a widespread perception that South African liquidators are intent on "liquidating and moving on" without regard whatsoever for the possibility of restructuring and rescuing a business. The allegations about the liquidation industry have resulted in proposals being submitted for turnaround experts to be identified and appointed in order to cultivate a new culture of business rescue in South Africa. It is admirable to promote a culture of business rescue as against the liquidation of companies. However, it would be naive to accept that the mere establishment of legislation will ensure that entrepreneurs will creep out of the woodwork to rescue firms.

The rescuing of business can only take place in an environment where entrepreneurs coming to the aid of liquidated or ailing businesses are provided with an incentive to do so. It might surprise many that the tools to implement rescue procedures already exist in our law. There are, however, very sound reasons why such tools have not succeeded in bringing about a culture of business rescue.

When a company in financial distress is placed in provisional liquidation, it is done because there is huge debt. On granting a provisional liquidation order, a moratorium known as a concursus creditorum is established and the hand of the law is laid on the company. No creditor can enforce any claim against the company, and the assets are protected from being attached by such creditors. When a provisional liquidator is appointed, he is, in terms of the Companies Act, empowered to carry on with or to discontinue any part of the business. The effect is that any prudent liquidator will take a commercial view in deciding whether it would be to the benefit of the creditors to continue with the business activities of the company.

It should only be in circumstances where it is clear that continued trading activities would lead to further deterioration of the business that a liquidator should elect to close the doors of the business and sell the assets. Liquidators with experience in turning around companies and businesses have been acting according to this principle for decades. The professional liquidator, often a chartered accountant or an attorney, will realise the consequences of an irrational decision to lock the doors and have the business's assets sold by auction or otherwise. It would be only the desperately inexperienced among liquidators who would allow the opportunity to maximise the realisation of a good business to slip past.

The recent amendments to section 38 of the Insolvency Act have the effect that contracts of employment of workers are no longer terminated upon the liquidation of an entity, but merely suspended for a certain period. This change affords the reasonably prudent liquidator the opportunity to extend to the workers the life line to earn an interim livelihood while he negotiates with prospective buyers. Steps are normally taken to reduce overheads to ensure profitable trading. Market forces work in a liquidator's favour where the business is well known or based on a sound business model, and it appears that the business is capable of being rescued or sold as a going concern.

In terms of this the Companies Act, restructuring a compromise or an arrangement acceptable to creditors should take no longer than a few weeks.However, the parties interested in restructuring are faced with:

• The reluctance by the SA Revenue Service (Sars) to allow the company being rescued having incurred losses in the past, to retain assessed losses.
• No guarantee that the courts would see the benefit of the proposed rescue and order that meetings of creditors for purposes of considering the scheme or compromise may be convened.

These obstacles have made it almost impossible to provide rescuers of businesses with any incentive to proceed and are the reasons for thousands of jobs having been lost. There are success stories but one finds that successes are attributable to liquidators with a rescue mentality as opposed to those who wish to "sell and move on" The government should realise that we actually have the tools available for the rescue of businesses, but that Sars and our courts have made it difficult for entrepreneurs to come forward for this purpose. This may be the reason that a culture to liquidate and walk away has been developed. Many entrepreneurs said they would rather buy the business assets on an auction and open a new business elsewhere.

Business rescue must be incentivised in order for it to work and any rescue plan must have the backing of the government and Sars. Should Sars not make it easier for rescuers by allowing for incurred losses to be assessed where such an assessment would have the effect of saving jobs?