DealMakers - 2024 Annual
Business Rescue Transaction of the Year
West Pack Lifestyle
Founded in 1996, West Pack – which comprised five companies (West Pack Lifestyle, West Pack Lifestyle Distribution Centre, West Pack Lifestyle Franchise, Petzone, and Petzone Franchise) – went into voluntary business rescue on 15 May 2024, believing that the rescue process provided a reasonable prospect for achieving a better outcome for stakeholders than an immediate liquidation.
The high cost of opening new stores in search of market share put the company in financial distress. Added to the mix was low economic growth and load shedding, which resulted in dwindling turnover, high inventory levels and trading losses, putting considerable pressure on cash reserves and West Pack’s ability to repay debt. Thus, it entered business rescue owing a substantial amount to creditors, including Absa, Access Bank and Preference Capital.
There was no formal group structure (as defined in the Companies Act), but all five companies were inter-related, with the same shareholder and director across the board. The business rescue process comprised five rescues, with the three West Pack rescues essentially run together, and the two Petzone rescues run together (under two separate plans).
Through a rigorous process of negotiations, 35 buyers were approached, 18 of whom expressed interest. Of these, 12 parties signed confidentiality agreements, with the BRPs receiving indicative offers from eight of the parties. Three parties subsequently submitted binding offers, but it was necessary for these to be revised to ensure that the interested parties had the operational and financial capacity to implement a transaction of the company’s size and complexity within the stipulated timeframes. With two parties remaining, a final offer was approved and accepted in October 2024.
After a number of claims had been brought outside of the rescue, the total offer for the West Pack Group was R110m, reflecting the value of outstanding debt. Notwithstanding the extreme challenges faced early on in the rescue, no post commencement finance was used, with the process funded entirely through trade and negotiations. Despite these challenges and considering the complexity and size of the enterprise, West Pack was able to be rescued in c. seven months.
Throughout the process, all companies continued to trade and, across all five rescues, there were no major retrenchments. Over 1,100 jobs, 30 Corporate Stores, 40 Franchise Stores (West Pack) and 30 Petzone stores were saved.
Petzone received a related party cash injection and the West Pack businesses were sold as a going concern, with assets preserved and no major retrenchments (outside of the stores that were closed).
Local Advisers
Matuson Associates, Credible Practitioners and Fluxmans.
Comment from the Independent Panel: Requiring two quick sales processes and saving 1100 jobs with limited disruption to store trading. The short timeframe for executing this process and the jobs saved were important factors for the panel.
Black Chrome Mine
A subsidiary of JSE-listed Sail (previously Chrometco), Black Chrome Mine (BCM) is located on the Mooihoek farm in the central region of the Eastern Limb of the Bushveld Igneous Complex in the Limpopo province. In July 2021, the Mine was placed under care and maintenance with a skeleton crew, following the placement into provisional liquidation of Sail Contracting, the mining services provider to BCM on 5 July 2021, and the entering into business rescue of Sail Minerals, which operated the Chrome processing plant, in September 2021. BCM filed for business rescue on 9 June 2022, citing the operation’s financially distressed state and the inability to pay debts on time.
Although there was a significant period of negotiation with potential post commencement finance providers, the funding was not secured. An alternative was implemented by the BRP and management. Utilising a collaborative philosophy, service providers were identified who were willing to assist BCM to re-start underground operations by utilising their own balance sheets.
Open-cast mining was restarted in August 2022, and this generated sufficient funds to allow the BRP to continue to trade. A formal sales process was initiated in September 2022 and concluded in March 2023. While two conditional binding offers were received for the assets of BCM, neither were deemed suitable, given execution risk and low returns to unsecured creditors. The best outcome for affected persons was to restart the mining operations and generate cash for the repayment of creditors. A business rescue plan was drafted and published on 31 March 2023.
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By August 2023, the open cast mining was being concluded and c.80,000 tonnes of a saleable run of mined Chrome had been produced and sold. Cash relief initiatives were implemented, and broader cost optimisation initiatives were explored. Discretionary payments were cancelled, and only those expenses that were considered revenue-generating or asset-protecting were prioritised.
Local Advisers
Genesis Corporate Solutions, Deloitte and Werksmans.
Comment from the Independent Panel: The panel noted the positive outcome achieved for creditors and employees, resolving a messy situation through a well-considered restructure, along with a restart of operations.
Underground mining resumed in March 2023. The ability to mine allowed sufficient cash to be generated, such that the BRP was able to table a 100c/R return for secured creditors and 50c/R return for unsecured creditors.
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A protracted period of negotiation took place between the BRP and key creditors, such that an amended business rescue plan was tabled and approved in April 2024.
The restructuring of the company involved a pure trade-out scenario, together with an extensive operational restructuring, which permitted the re-start of the underground mining operations. At the start of business rescue, BCM had R12,5m available in cash resources; as at March 2024, available cash was R108,5m. The mine continues to be cash generative and has allowed for an additional 1,100 employees to be employed with more than 50% coming from the local community.
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BCM exited business rescue on 13 December 2024.
BR Pick of the best in no particular order
Rebosis Property Fund
The first black majority-owned and managed REIT to list on the JSE (in 2011), Rebosis held an extensive property portfolio consisting mainly of regional shopping centres and large single-tenanted commercial offices. Several years of deteriorating performance was made worse by the effects of the COVID-19 pandemic, national and provincial government department delays in rent payments (accounting for 50% of its revenue) and the impact of rising interest rates on its debt, placing the company under increasing financial pressure.
At the time of listing, Rebosis owned seven properties valued at R3,3bn. In February 2022, the last financials published prior to going into voluntary business rescue, the REIT had 41 office and retail properties valued at R13bn, with bank debt of R9,5bn.
Post COVID, the company had been working on a turnaround plan to restructure and strengthen its balance sheet. Plans included the sale of non-core properties, including those owned by its subsidiary, Ascension Properties. But attempts to dispose of its portfolio met with shareholder resistance, resulting in Rebosis entering business rescue on 25 August 2022. The REIT’s shares were suspended with immediate effect.
The business rescue plan was published and adopted in March 2023, following strong support from independent creditors representing 100% of the voting interest. Pivotal to the process was securing a positive outcome from the secured lenders who agreed to use the secured proceeds from the rental received from tenants to fund the business rescue costs.
In April 2023, the BRPs commenced with the registration of the public sales process of the fund’s assets. From this process, 22 buyers were selected to proceed to the due diligence and offer phase. Preferred bidders included private individuals, joint ventures and JSE-listed REITS. The government-tenanted portfolio, of which there were 36 buildings, received interest from unlisted property groups and seasoned property entrepreneurs specialising in this asset class.
In September 2023, a portfolio of four office properties (three in Ekurhuleni and one in Midrand) were sold to Heriot Investments for R160m, the CBD Property Portfolio to the Herring Family Trust for R3bn, and the Hangar 18 portfolio properties to Ferryman Capital Partners, Hulk Investments, Jade Capital Partners and the beneficiaries of the Ubuntu Football Trust for R4bn. Hemipac Investments, a subsidiary of SKG Africa, acquired a portfolio of 10 office properties for R650m. 41 properties were sold to 32 parties, resulting in proceeds of R8bn and c.90% of its debt repaid.
The sales process was finalised within a year of the adoption of the plan – a relatively short period of time given the regulatory approval required, number of properties sold, and the multiple stakeholders involved.
The company has exited business rescue, and continues to trade. The shares remain suspended until such time as the company complies with the JSE Listing Requirements.
Local Advisers
Genesis Corporate Solutions, DTB Business Rescue,Deloitte, Java Capital, Black Acres, Nedbank Capital, Bowmans,ENS, Cliffe Dekker Hofmeyr and Vani Chetty Competition Law.
Comment from the Independent Panel: A good outcome for creditors: 41 buildings sold despite a tough environment, realising R8bn.