Liquidations surge in SA: ‘Business turnaround is key’

As economic headwinds continue to batter South African businesses, troubling new statistics released by Stats SA show that liquidations are on the rise. Thousands of companies are in distress, leaving many CEOs and entrepreneurs worried about the future of their businesses.

However, according to Michael Dorn, an internationally respected business turnaround expert, all hope is not lost. While some may consider a “rescue” approach to address their struggles, he suggests that a “turnaround” approach may be more effective in achieving long-term success for the business.

Dorn has shared his insights on the state of business rescue in the country, saying that it is often misinterpreted and misunderstood. As the founder and chief executive of the multinational turnaround firm RTgroup, he has been involved in some of the biggest business survival stories in corporate history.

His experience has taught him that legalistic “business rescue” more often than not leads to liquidation, rather than turnaround, especially in the South African context, said Dorn.

“Once a business is placed in ‘business rescue’ here, it often triggers a legalistic exercise involving lawyers, consultants, liquidators and courts, that leads to the business being broken up, liquidated and its assets being sold off for the most money possible.

“Very few practitioners in the field in South Africa are truly interested in saving businesses and turning them around, which is quite tragic,” he emphasised.

For Dorn, true business rescue is about proactively intervening to turn around a business’ bad fortunes, to ultimately save the business.

“In the South African business rescue context, what we often see is that practitioners will turn to legislation and follow a step-by-step legal process often leading to a wind down of the company. I don’t agree with this approach. I believe if, as turnaround experts, we come into businesses with an entrepreneurial and proactive mindset, it’s mostly possible to find opportunities that can ensure the survival of the business.”

He added that the same conservative mentality that currently prevails in South Africa, also prevailed in Germany some years ago, but today real business turnaround is gaining greater traction. “The USA is even more progressive. If a company is in distress there, often a Chief Restructuring Officer is appointed and this person will take a proactive, future-focused approach to saving the business.”

Dorn noted that business failure is not the end of the line.

“Being an outsider, I am noticing a cultural phenomenon in South Africa around business failure. South African entrepreneurs who are coming close to failing or who have failed, often feel an immense amount of pain and shame, and will often allow a liquidation and/or sequestration to go ahead, so that they can go hide somewhere and lick their wounds.”

He said that in Silicon Valley and the USA, with its popular mantra of “fail fast forward”, and its culture’s celebration of failure and resilience, it is evident that many top companies and business leaders there have faced hard times but found ways of trying again, to great success.

He furthermore cited Tesla as one such example. Elon Musk’s business went through a two-year period of turnaround where the company shifted resources, produced and launched new products, and completed a new round of funding before the business showed profits.

Dorn believes that true business turnaround looks at the health of a business, in terms of its balance sheet, products, and culture, as well as where it is in terms of its growth or decline trajectory.

After getting a clear picture of the challenges and opportunities of the business, a seasoned turnaround professional will be able to help the company’s leadership to initiate new cycles of innovation, growth and renewal related to the people and numbers of the business.

“Proactivity is the key to business turnaround,” says Dorn. He believes that challenges create fertile ground for opportunity, and with a proactive mindset, most challenges can be overcome.

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