Successful Business Rescue in the Timber Industry

Case Study: WP Timbers

Overview

The business was originally established in July 1948 and operated successfully for many years. In May 2015, the business was purchased for a substantial amount, financed by no fewer than six financiers, in addition to the owner's personal contributions. Unfortunately, the reality was that once the repayment holiday period expired, the monthly repayments exceeded the highest profit the business had ever generated in any single month. This meant that the business could never afford the repayments, and it was financially unsustainable from the outset. The high purchase price ultimately set the business on a path toward financial ruin.

The Crisis

The business quickly became unable to meet its repayment obligations to the various funders. Letters of demand began to flood in, with each financier racing to secure payment or be first in line with attachment orders. The business owner was advised by his legal team that there was no viable defense, and liquidation seemed imminent. Despite this, the owner opted to file for business rescue in an attempt to provide a better return to creditors. It was determined that the business could not be rehabilitated to continue trading sustainably in the future. Instead, the decision was made to follow the second part of the definition of business rescue, aiming to achieve a better outcome than traditional liquidation through a structured wind-down.

The Rescue Plan

To ensure a better outcome for creditors than what would have been received through liquidation, the business needed to wind down in a faster and more cost-effective manner. As part of the plan, all assets were auctioned, similar to how they would be in a liquidation, but at significantly reduced costs. The costs of the process were negotiated to be only a fraction of those in a traditional liquidation, and the timelines for the entire procedure were drastically shortened. This approach ensured a far better return for all affected parties. The structured wind-down was not only more affordable and quicker but also considerably less disruptive to the stakeholders involved. 

The Outcome

The business rescue plan was unanimously adopted with a 100% vote in favor from creditors. The plan provided for significantly greater dividends than what would have been realized in a liquidation. Staff received full retrenchment packages, which would not have been possible in a liquidation scenario. Furthermore, the business owner was afforded a degree of protection from personal sureties, as the difference between the liquidation dividend and that of the wind-down proceeds exceeded the net worth of the owner. All parties involved agreed that this was a far better outcome than liquidation, and the entire process was completed in 90 days, compared to the two-year timeframe a liquidation would have likely required. 

Conclusion

This case illustrates how a structured wind-down through business rescue can provide a significantly better outcome for all stakeholders compared to a traditional liquidation. By reducing costs, shortening timelines, and maximizing returns, the business rescue process allowed creditors to receive greater dividends, employees to secure full retrenchment packages, and the owner to avoid the severe personal financial repercussions of liquidation. Ultimately, the structured approach achieved its goal of protecting the interests of all parties involved in a fraction of the time a liquidation would have taken..