Successful Business Rescue in the Plastic Extrusion

Case Study: Henrose Plastics

Overview

Established in 1969, the business had over 45 years of experience in the manufacture and supply of plastic bags and related products. The company enjoyed many years of exceptional growth and profitability. However, the business embarked on an ambitious expansion phase, which placed significant strain on its cash flow. Unexpected costs and delays occurred, and the anticipated benefits did not materialize as quickly as expected. This ultimately led to a decline in financial stability and placed the company in financial distress. The owners then filed for business rescue in terms of section 129 of the Companies Act.

The Crisis

Although the business was not at death's door yet, the writing was on the wall. As defined in Section 128 of the Companies Act, the business was facing serious financial distress "within the immediately ensuing six months." The primary concern was the various facilities provided by the business’s main bank. If these facilities were terminated, the business would immediately default on all its obligations to creditors, including payments to staff. The most pressing issue was the overdraft, which was secured by a cession of book debt. This meant that not only would the business lose the facility, but all incoming funds would be absorbed by the bank, leaving the business destitute.

The Rescue Plan

In this case, no business rescue plan or process would have been feasible without the cooperation of the bank. Thanks to the business’s strong reputation and the credibility of the practitioner, they were able to present the bank with a preliminary plan that provided enough confidence for the bank to support the process. Not only did the bank refrain from calling up the cession of book debt or terminating the overdraft, but it also chose not to perfect on its facilities. In fact, the bank went further by providing Post-Commencement Finance (PCF) to the tune of several million rand.

This collaboration allowed for the adoption of a business rescue plan that resulted in full repayment to all creditors, including interest. The plan also involved rightsizing the business and implementing operational improvements. As a result, the business was saved, along with more than 30 of the 33 jobs. 

The Outcome 

The business rescue plan was unanimously adopted with a 100% vote in favor from creditors. This case demonstrates that, when a business seeks business rescue early enough and all parties are open and transparent about the situation, Post-Commencement Finance (PCF) is not just a theoretical concept but a viable option. The PCF provided in this case came with terms and conditions, but none that were unreasonable. As a result, the business was saved from certain failure, proving that collaboration and early action can lead to successful outcomes in business rescue. 

Conclusion 

This case highlights the importance of early intervention and open communication in the business rescue process. By acting before the business was beyond recovery and working transparently with creditors, especially the primary financier, the company was able to secure Post-Commencement Finance (PCF) and avoid the worst-case scenario of liquidation. The structured plan allowed for the full repayment of creditors, saved the majority of jobs, and restored stability to the business. This example demonstrates that when all parties are willing to collaborate and take proactive steps, business rescue can be a highly effective tool for preserving value and saving businesses from financial distress.