Business rescue can help struggling mining businesses

The effects of the low commodity price environment are compounded by the continued rise in operating cost.

Low commodity prices and rising costs have kept the mining industry under severe pressure during the past year. According to Statistics South Africa (SSA) mining production had declined by 6,9% between the beginning of this year and the end of August.

“The effects of the low commodity price environment are compounded by the continued rise in operating cost. These include above inflation increases in labour and electricity costs,” says Annabel Bishop, economist at Investec in a recent note to clients.

Bishop says in an effort to remain profitable many mining companies have been forced to reduce both their capital expenditure and head counts. “The gold price is looking better so gold mining is doing well, but the real pressure is on coal and iron ore. Coal could face a terminal decline as the word switches to new technology to make increasing use of gas and renewable energy sources. Smaller minerals like manganese and chrome are also struggling,” says Mike Schüssler, economist and director at

SSA figures show that the production of manganese ore was 13,7% lower in August compared to a year ago, while the production of nickel was 20,6% lower.

Gareth Cremen, partner specialising in business rescue at the Johannesburg office of global law firm Hogan Lovells, says struggling companies often remain in denial about their financial position until it is too late. “They keep telling themselves things like ‘we just need this one big contract’ or ‘prices will pick up soon’. This means they fail to seek much needed help and by the time reality sets in it’s far too late.”

Cremen says many directors are still not aware of how business rescue can be used to save struggling mining companies – if they act soon enough. This could mean the difference between failing during a difficult period and surviving to take advantage of an improvement in conditions.

Business Rescue was introduced in the Companies Act as a legal process aimed at restructuring companies which are in financial distress in order to save them. The first goal of effective business rescue is to rescue a company from financial distress and avoid liquidation. If this is not possible, the goal becomes to implement a business rescue plan that should result in a better return for the creditors or shareholders of the company than immediate liquidation would. “Ultimately business rescue is a win-win situation in comparison to flat out liquidation. It was developed with the aim of saving jobs, while with liquidation all employees usually lose their jobs,” says Cremen.

He says Companies Act makes it quite easy for ordinary people, professionals, directors and even employees to put a company into rescue. “The procedure to begin business rescue was created with ordinary man on the street in mind and it’s not just for attorneys.”

The board of a company can make the decision to go into business rescue by its own accord or any affected person – this includes shareholders, creditors, employees and trade unions representing them – may also apply for a court order to place a company into business rescue. “This means that creditors can also use business rescue as a way of collecting debts owed to them. Placing a company into business rescue ensure that you, as the creditor, can appoint a business rescue practitioner that is truly independent and will look after the interests of all stakeholders. Business rescue in the right hands should yield a higher return to creditors than if that company were to be liquidated.”

During business rescue the BRP can also end or renegotiate burdensome contracts, for example a lease on equipment that has become unaffordable.

Qualifying for business rescue

To qualify for business rescue a company must be “financially distressed”. That is it most seem reasonably unlikely that it will be able to pay its debts as they become due over the next six months or if it seems likely that the company will become insolvent within six months. Once placed under business rescue the affected person or company then nominates a business rescue practitioner (BRP) to oversee the company whilst it is under business rescue.

Cremen says the BRP plays a significant role in the rescue process. “All BRP’s are licensed by the CIPC (Companies and Intellectual Property Commission). Appoint a practitioner who possess the necessary skills and knowledge to revive your business. An experienced attorney in business rescue can be of great help in assisting companies through this process.”

During business rescue the BRP has full management control of the company and effectively replaces the board and previous management. The BRP is expected to publish a business rescue which must be adopted by the affected persons before it can be implemented. “This is the plan to be implemented in order to restructure the distressed company and ultimately bring it back from the brink of extinction.”

Cremen says an important advantage of business rescue is that it places a general moratorium on legal proceedings against a company in business rescue, including any enforcement action against the company its property. Legal proceedings instituted before the business rescue proceedings are also frozen.

Schüssler says although the South African economy is not growing, we are still faring better than our BRICS partners Russia and Brazil. “Zero growth means we are getting poorer as our population is still growing. So it’s not easy out there, but it gives us time to turn things around.”


Equipment Africa says: It is tough times for most mining companies in the face of downward commodity prices. This moratorium gives companies some breathing space to restructure their affairs and repay their debts. During business rescue the BRP can also end or renegotiate burdensome contracts, for example a lease on equipment that has become unaffordable. Under normal circumstances the company would not be able to do this.

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