Monday, January 25, 2021

South African business rescue law adds a new risk for local exporters

Local exporters are likely to lose the money they are owed by their customers in South Africa, following the introduction of a business rescue law, suspending any financial claims against companies which are struggling for survival in that country.
The law was implemented in August this year, to salvage the financially distressed companies in SA.

Meanwhile, Botswana Export and Credit Insurance (BECI) has argued that as the law embraces the debtors than creditors, local exporters could end up losing the money they are owed by their SA-based customers who go bankrupt or find themselves in prolonged financial difficulty.

The organization has recently released red alert warning local exporters to be more cautious when dealing with SA-based companies, as some of them are already enrolled in the rescue plan.

BECI Marketing Manager, Bonani Dube, said “of particular concern to businesses in Botswana is that the law gives debtors a lot of extra protection against any financial claims that the exporters may have against them. The risk of late payment or non- payment is imminent as it also shields the customers’ assets from confiscation”.

He noted that the suspension, which could be fixed for years, will disturb the exporter’s cash flow as the payments are delayed. Bonani said the law calls for negotiated balance which also does not give assurance that the owed exporters will receive their money as per contracts.

The Marketing Manager said the legislation adds a whole new dimension of risk, which can close local businesses if not attended urgently.

“The recovery will be delayed and accompanied with stress and uncertainty. Local companies are, therefore, likely to develop cold fear of trading on credit with SA-based companies, a situation which can affect this country’s economy,” he warns.

However, a South African organization of rescue practitioners, Companies and Intellectual Property Commission, has recently defended the law. The organization claimed that the law saves businesses from liquidation, something which has long term benefit for exporters.

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