1. Turnaround funding and financial restructuring – issues and challenges Dr. Gerhard Holtzhauzen GIBS Corporate renewal, business turnaround and rescue 5 March 2015

2. Financial Funding and Restructuring Challenge under Business Rescue is to fund and restructure “…. in (such) a manner that balances the rights and interests of all relevant stakeholders…(affected parties)”. The Business Rescue plan must indicate (i) “….the extent to which the company is to be released from the payment of its debts…”, and (ii) “….the extent to which any debt is proposed to be converted to equity in the company…”. The ranking position of restructured finance in Business Rescue process a potential challenge. Any one of the proposed restructures (collectively or otherwise) have an impact on TAX.

3. Financial Restructuring Financial restructuring is the reorganising of a business‘s assets and liabilities and it is done through: – Equity funding and restructuring. – Term Debt funding and restructuring. – Trade Debt funding and restructuring. – Refinancing of assets. – Restructuring “off-balance sheet”.

4. Equity Funding and Restructuring Definition: Equity Funding is the process of raising capital through the sale of shares in an enterprise and it essentially refers to the sale of an ownership interest to raise funds for business rescue purposes. Equity restructuring has firstly the aim to restore balance sheet solvency and improve liquidity in the business. Dilution of shareholders interest.

5. Equity Funding and Restructuring Under Business rescue; – Classes of shares. – Debt equity swap. – Merger and/or acquisition. – “New” equity partnerships. – Rights issue

6. Equity Funding and Restructuring Benefits Contribute to restoring solvency. No immediate repayment. Ensure continuation of the company. Current shareholders own contribution, agreement. Under BR probably less resistance. Regulatory lenience under BR Drawbacks Determination of the value of the company and debt – under BR. Debt equity swap do not contribute to cash flow. Smaller creditors usually not included. Current shareholders not prepared to dilute.

7. Term Debt Funding/Restructuring Definition Term Debt financing refers to funds borrowed by a business. Restructuring of term debt spans a wide range of activities such as interest rate, repayment term, collateral, affordability and smaller monthly repayments. Under Business Rescue – Pre-plan restructuring- mostly to obtain temporary cash-flow. – Post-plan restructuring – more permanent position.

8. Term Debt Funding Benefits Supply of much needed cash. Terms to suite BR process. Continuation of the business. Drawbacks Lenders resistance to high risk lending. Traditional lenders not interested. Expensive. (High Risk) Mostly not available for long term.

9. Term Debt Restructuring Benefits Enable affordable repayment terms. Potential interest pardon on “old” debt. So-called “haircut” Position to renegotiate interest charge on PCF. Drawbacks Lenders resistance. First loss – best loss principal being applied by lenders. Mostly done with request for additional security. Costly due to higher interest charges.

10. Refinancing of assets. Refinancing mainly to obtain cash for working capital requirements. Business Rescue requirements refer to section 134 property rights. Assets under finance – refer to Debt restructuring Unencumbered assets: – Subject to valuation – Type of asset – Return on Asset

11. Refinancing of assets Benefits Immediate cash. Repayments can be structured to fit the cash flow of company. Drawbacks Unencumbered assets only. Require adequate value. Limited to assets available. Ownership has passed – can’t do normal asset based finance- Require SNB and/or GNB. Remaining life of asset.

12. Trade Debt Restructuring Definition: Trade Debt is money owed for goods or services purchased on credit. Under Business Rescue; – Pre-commencement trade debt usually ring-fenced under legal moratorium and subjected to a compromise, debt pardon or repayment plan. – Post-commencement trade almost without exception Cash on Delivery (COD) or per-payment. – Post-commencement trade credit treated as post- commencement funding (PCF)

13. Trade Debt Restructuring Benefits Trade creditors more likely to accept compromise payment. Future business relationships of greater value. New stock paid Drawbacks Difficult to restructure as continued supplied usually required. COD and pre payments require cash

14. Restructuring “off-balance sheet” Contingent liabilities. Operational rentals. Property lease agreements. Under Business Rescue beneficial to cancel current agreement and enter into a new agreement.