- Weak board governance ranked highest among internal factors likely to trigger financial distress.
- The report anticipates an increase in business restructuring at 64%.
The hope for the effectiveness of business overhaul to gain stability and regain profitability is growing amongst leaders, albeit rather slowly.
The latest Deloitte Africa Restructuring Survey pessimism’ fell from 81 per cent in 2023 to 75 per cent this year as restructuring managers accept the current economic situation and are demonstrating resilience in the face of uncertainty.
Jo Mitchell-Marais, Africa Turnaround and Restructuring leader for Deloitte Africa contextualizes this new rating by saying that ''respondents don’t necessarily feel optimistic, but they have ‘accepted’ the current economic situation and are demonstrating resilience in the face of uncertainty."
“Companies are trying to operate despite these challenges”, Mitchell-Marais, “but we are far from being ‘optimistic’ given the Fitch Ratings forecast of real GDP growth only increasing by 0,9 percent in 2024 and 1.3 percent in 2025.”
According to the report, informal turnaround and restructuring mechanisms – whether operational, advisor-led, or management-led – are anticipated by respondents to deliver the best returns to unsecured creditors - with 57 per cent return from advisor-led versus 53 per cent from management-led procedures.
The report anticipates an increase in business restructuring expected, with 64 per cent of respondents anticipating a rise in business rescue activity, particularly focusing on operational restructuring, advisor-led restructuring, and informal management-led initiatives.
In Kenya and East Africa, the number of companies struggling financially has been on the rise in the past year, with the East Africa Restructuring Quarterly Bulletin - April 2024 by Bowmans saying there was a 48 percent increase in cases in the period under review.
This attributed to a volatile economic situation, especially in Kenya which saw the local currency drop to a historic low against the greenback as the fears of a global financial crisis hovered.
For instance, Old Mutual is facing a liquidation suit as Tropic Air Limited, a privately-owned air charter company, demands $3 million in compensation for an accident involving one of its helicopters in 2022.
Tropic Air issued a 21-day notice to Old Mutual to settle the claim, warning of liquidation proceedings if the payment is not made.
Resolution Insurance was forced to enter liquidation after attempts to rescue the company over nearly 21 months failed.
Long’et Terer was appointed as interim liquidator by the High Court to manage the process.
Cash-strapped Uchumi has halted discussions on its franchising model, which was once seen as a key element in its recovery strategy.
Mazars Consulting Limited, which is overseeing the retailer’s Company Voluntary Agreement (CVA) plan, notes a lack of progress on franchising and engaging the government in its economic transformation agenda.
While some progress has been made, including settling 82 percent of old debts, Uchumi’s revenues have fallen far short of projections, indicating the need for effective restructuring efforts.
VAELL, a company involved in the leasing of industrial equipment is under administration due to defaulting on payment of debts amounting to Sh1.1 billion. The Official Receiver was appointed as an administrator of the company.
The trend is the same regionally and internationally, with noted cases in the US, China, Europe, and South Africa.
Perhaps the hallmark of the rise in business restructuring was when a Hong Kong court ordered the liquidation of Evergrande, a significant Chinese property developer, triggering cross-border insolvency arrangements between Hong Kong and Beijing.
The case has implications for a 2021 agreement allowing Hong Kong liquidation proceedings to be recognised in certain Chinese cities.
Weak board governance ranked highest among internal factors likely to trigger financial distress.
This was followed by concerns about cash management and inadequate financial controls.
Factors identified that trigger a restructuring process include actual missed debt service, over-stretched trade creditors, and actual covenant breaches.
Experts at Deloitte say that many of these factors can be detected early by the board with effective, consistent, and transparent reporting.
They are calling for improved insolvency legislation.
The top three suggestions include better protection of post-commencement financing (PCF), specialised insolvency courts, and new unified Insolvency Acts.