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Deloitte Africa Restructuring Survey reinforces the importance of effective governance and robust financial controls

THE annual Deloitte Africa Restructuring Survey reinforces the importance of effective governance and robust financial controls to ensure business distress is detected early enough to take the necessary steps to protect or salvage the organisation.

These governance and financial controls become increasingly important in the context of the recent Statistics South Africa Statistics data, which indicated a rise in company closures, with liquidations increasing by 34,6% (or 109 businesses) in January 2024, as compared to the same period the previous year. Industries impacted included financing, insurance, real estate, and hospitality sectors. 

Jo Mitchell-Marais, Africa turnaround & restructuring leader for Deloitte Africa noted that, “The development of skilled and qualified directors will go a long way in assisting to improve the board’s ability to both identify early warning signs of distress and take appropriate, timely, and corrective action. It is crucial that they have their finger  on the pulse of the business, and broader socio-political and economic activity.”

She continued by highlighting the elevated responsibility of the board, and specifically the board chair. In the Deloitte Chair of the Future report it was noted that chairs today play a critical role in the success or failure of their organisation ; they serve as a trusted sounding board and guiding hand for the chief financial officer, and the broader executive team.

This C-suite, together with restructuring professional bodies, play a critical role in shaping legislation and regulation, for example with the planned Companies Act reform, pressure from business leaders should be the norm. 

Mitchell-Marais noted her disappointment that three top considerations were not included in the recent draft bill, which would provide better protection of post-commencement financing (PCF), specialised insolvency courts, and a new unified Insolvency Act. Each would provide significant efficiency for companies, creditors, and all stakeholders.

With this context coupled with the additional complexities of the South African, and global, economy – the Deloitte Africa Restructuring Survey 2024 highlighted that respondents believed that the local economy would take up to three years to reach pre-pandemic levels.

Responses from business leaders surveyed in the Deloitte Africa Restructuring Survey indicate that ‘pessimism’ has fallen from 81% in 2023 to 75% in 2024. 

Mitchell-Marais contextualises 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.

In the report this is seen as the ‘new normal’ – that being an elevated electricity crisis, soaring interest rates, ineffective ports and ongoing political uncertainty – brought about by the election in May.

“Companies are trying to operate in spite of 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% in 2024 and 1.3% in 2025.”

Against this backdrop of the ‘new normal’, organisations in South Africa face real challenges and therefore business distress can be expected. The Deloitte Restructuring Survey highlights that informal operational restructuring will take centre-stage with business rescue seen as a last resort.

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