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FIRST MEETING OF CREDITORSLE-SEL RESEARCH (RF) (PTY) LTD (IN BUSINESS RESCUE)
11 January 2018
LE-SEL RESEARCH (RF) (PTY) LTD (IN BUSINESS RESCUE)(“THE COMPANY”)
FIRST MEETING OF CREDITORS
Agenda:
� Welcome by Business Rescue & Introduction
� The Business Rescue Process
� Background
� Reasonable Prospects of Rescuing the Company Actions to Date
� Liquidation vs Business Rescue
� Proof of Claims
� Formation and Appointment of Creditors Committee
� Voting on the Extension of time to publish the business rescue plan ito section 150(5)(b).
� Questions & Answers
� Conclusion
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THE BUSINESS RESCUE PROCESS:
About Business Rescue:
Business Rescue involves proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for: -
� The temporary supervision of the company, and of management of its affairs, business and property; and
� A temporary moratorium on the rights of claimants against the company or in respect of property in its possession.
Primary Objective of Business Rescue:
The development and implementation of a business rescue plan that either:
� Rescues the company by restructuring its affairs, business, property, debt and other liabilities and equity in a manner that maximises the likelihood of the company continuing its existence on a solvent basis, or
� If that is not possible, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.
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THE BUSINESS RESCUE PROCESS:
Commencement of Business Rescue Proceedings:
� On 15 December 2017, the board of the company adopted a resolution to voluntarily commence business rescue proceedings in terms of section 129(1) of the Companies Act 71 of 2008 (“the Act”).
Appointment of Business Rescue Practitioner (BRP):
� Phahlani Lincoln Mkhombo was appointment as the BRP of the company on 15 December 2017 in terms of section 129(3)(b).
� Confirmation of the BRP’s appointment was only received on 3 January 2018.
Objectives of the First Meeting of Creditors:
The main objectives of today’s meeting are for:
� The BRP to express an opinion as to whether or not the BRP believes there is a reasonable prospect of rescuing the company;
� Formation and Appointment of Creditors committee;
� Receipt/Proof of Claims from Creditors; and
� Voting on the Extension of time to publish the business rescue plan.
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BACKGROUND:
EXECUTIVE OVERVIEW
Background
� Le-Sel is one of the largest home and personal care contract manufacturers in South Africa.
� It produces more than 6 million units of personal care products every month for many local
and multi-national companies, products that can be found in every retailer and are used by
millions of people in South Africa and on the African continent every day. Employing more
than 500 people directly, Le-Sel also impacts the lives of many more people at its many
suppliers in South Africa.
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BACKGROUND:
Group Structure
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Le-Sel Research (RF) (Pty) Ltd
Biz Afrika Beauty Factory (Pty) Ltd
Biz Afrika 884 (Pty) Ltd
BACKGROUND:
REASONS FOR COMMENCING BUSINESS RESCUE PROCEEDINGS:
� The Company was operating at a loss and consequently it was struggling to pay its
suppliers/creditors.
� Unfortunately, the Company has, due to cash flow problems, fallen in arrears with payment
of certain suppliers in the amount of approximately R50 million.
� As such, the Company’s projections are that for the next 6 (six) months, the income of the
Company will marginally exceed the expenditure of the Company. However this projected
marginally positive cash will be insufficient to pay all of its debts within the immediately
ensuing six months. Accordingly, the Company is financially distressed.
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BUSINESS RESCUE TIMELINES:
Key Dates
The table below details the key dates for business rescue of the Company:
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Event Date
1 Commencement of Business Rescue Proceedings 15 December 2017
2 Appointment of Business Rescue Practitioner 15 December 2017
3 First Meeting of Creditors: 03 January 2018 –
Adjourned to 11 January 2018
03 January 2018 & 11
January 2018
4 First Meeting of Employees:03 January 2018 –
Adjourned to 11 January 2018
03 January 2018 & 11
January 2018
5 Publication of the Business Rescue Plan 24 January 2018
6 Meeting to Consider Business Rescue Plan 5 – 10 days thereafter
SECURITY
Mercantile Bank
� Mercantile Bank is the only secured creditor.
� GNB and SNB over the company’s movable assets – The GNBs and SNBs have been perfected
pursuant to a court order obtained by Mercantile Bank.
� Mercantile Bank also have guarantees and cross suretyships in terms whereof the Company
guaranteed the due, proper and punctual payment and performance of obligations by other
companies within the Lesel Group.
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ACTIONS TAKEN TO DATE:
Actions Taken To date:
� Since my appointment, I have engaged with all our big customers who have expressed their
willingness to support the Company during the business rescue proceedings.
� The customers have given an undertaking that they would not move or cancel their orders
placed with the Company during business rescue as long as we continue with the
manufacturing and production of all the products.
� In the last 24 hours, we have received additional orders of about 200 000 units per week i.e
800 000 units per month from one of the current customers.
� Another customer has asked the Company to manufacture and produce a new product range
that it would be launching for its international customers.
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ACTIONS TAKEN TO DATE
Actions Taken To date:
� I have also engaged with a number of suppliers who have expressed their continued support
during the rescue process.
� Most of the suppliers have agreed to continue supplying during business rescue provided
they are paid on COD basis. The pre-business rescue debts/liabilities will be dealt with in the
BR plan. Separate agreements would be concluded with suppliers who have agreed to supply
on COD basis.
� I also conducted an assessment of the current issues in the last couple of days. In the main,
most of the issues relate to operational inefficiency such as poor planning, ageing
infrastructure/equipment reliability, lack of proper planning around production, high labour
costs, late delivery of raw material by some customers which hampers on production.
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ACTIONS TAKEN TO DATE
Actions Taken To date:
� We’re currently reviewing the current operating model (i.e free issue vs fully sourced) and what the funding requirement of each model would be.
� I have succeeded in obtaining a certain level of PCF for the continuation of operations of the company.
� With the support of the PCF the company will continue to trade, maintain its goodwill and preserve jobs.
� In the last 24 hours, I have received 4 calls from various interested parties who have expressed interest to acquire the business and have already had a meeting with one of the interested party who is part of a consortium which include one of the biggest retailers in SA.
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PROSPECT OF RESCUING THE COMPANY
In light of what I have raised above, it is my view that, notwithstanding inevitable risks and
challenges, there is a reasonable prospect of rescuing the Company based on the following:
� Current order pipeline.
� Current projections/forecast
� Operational Efficiency.
� Continued operations.
� Suppliers agreeing to continue to supply on a COD basis.
� Reducing Operating Expenses to preserve cash.
� Continued PCF support.
� Potential investor or acquisition transaction.
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PROSPECT OF RESCUING THE COMPANY
OPINION:
The BRP is of the opinion that there is a reasonable prospect of rescuing the Company. Various
options will be investigated together with inputs from creditors, management and shareholders.
Should the BRP at any time conclude that there is no reasonable prospect for the Company to
be rescued, the BRP must advise affected persons and apply to court for an order discontinuing
the proceedings and placing the Company into liquidation.
Termination of Business Rescue Proceedings:
� The proposed Plan is rejected and proceedings not extended.
� The Court orders the conversion of business rescue proceedings into liquidation.
� The BRP concludes that the Company is no longer in financial distress.
� The BRP files a notice of substantial implementation of the approved Plan.
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BUSINESS RESCUE VS LIQUIDATION:
MORATORIUM
� The formal moratorium under Business Rescue allows “breathing space” to formulate,
propose and implement a Business Rescue Plan.
� During Business Rescue proceedings, no legal proceedings, including enforcement action
against the Company, may be commenced or proceed with in any forum, without the written
consent of the BRP or with the leave of court.
The Business Rescue Plan
� The Business Rescue Plan will be approved if:
� (a) it is supported by the holders of more than 75% of the creditors voting interests that are
voted, and
� (b) the votes in support of the proposed plan include at least 50% of the independent
creditors voting interests if any, that voted.
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BUSINESS RESCUE VS LIQUIDATION:
Business Rescue Liquidation
Employees Employees continue to be employed by the
Company and receive salaries and benefits from
date of commencement of business rescue to date
of implementation of the plan or termination of
business rescue proceedings or termination of
employment
Employment contracts are suspended on
liquidation.
Employees receive capped severance in
terms of the Insolvency Act. Maximum of
R28 000.00 per employee.
Realisation
of Assets
Maximum value is preserved and realised. Assets are usually sold at distressed prices.
Timing 8 – 12 Months - payment made to creditors in terms
of the payment waterfall as and when funds are
available.
18 – 24 Months – Payment of dividend
could take between 18 – 24 months after
L&D account is confirmed by Master of
High Court
Fees Business rescue fees are significantly less and are
based on set tariff or by agreement.
Fees are based on fixed percentages of
gross value of assets realised, irrespective
of third party costs incurred.
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PROOF OF CLAIMS:
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CLAIMS:
� Outstanding amounts for services rendered and goods delivered prior to 15 December 2017,
the date of commencement of Business Rescue are subject to moratorium.
� A claim form will need to be submitted for such amounts. These Claims will be reconciled
with the Company’s records and any discrepancies investigated.
� The payment of these amounts will be dealt with in terms of the Business Rescue Plan.
� The claim form was circulated to all known creditors and suppliers and is available at the
following link: www.lesel.co.za
FORMATION AND APPOINTMENT OF CREDITORS COMMITTEE:
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FUNCTION, DUTIES AND MEMBERSHIP OF THIS COMMITTEE
A committee, appointed in terms of section 147 of the Act, may:-
� Consult with the BRP about any matter relating to proceedings.
� Receive and consider reports relating to proceedings.
CALL FOR NOMINATIONS
� Creditors wishing to form a committee need to nominate representatives to sit on that
committee.
EXTENSION OF TIME TO PUBLISH THE BUSINESS RESCUE PLAN:
19
� The Act provides that the date for the publication of a business rescue plan can be extended, if supported by creditors holding a majority of the voting interests.
� The BRPs reasons for requesting this extension include:
- Due to the summer year end vacation period, the BRP was not able to progress with the
full investigation of the companies affairs and engage with all the different stakeholders
since most people only returned to work this week Monday.
- BRP wants to conduct a full operational and financial review of the business in order
determine with certainty the funding and capex required to turnaround the business.
- Investigate further the financial implications for the free issue model vs fully sourced model
and the funding requirement of each model.
- Assess likely BR and liquidation outcomes.
- Determine with more accuracy the quantum of dividend payable to creditors.
- Investigate whether a sale of business will improve returns for creditors.
EXTENSION OF TIME TO PUBLISH THE BUSINESS RESCUE PLAN:
20
� The BRP request that creditors approve the request for extension of time to publish the
business rescue plan to 28 February 2018.
� Voting will be by way of a poll unless if all the creditors are in agreement. Please complete
the voting forms and hand these to one of the BRP team.
� We will adjourn for a few minutes to allow voting to happen and the result to be calculated.
GENERAL:
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� The BRP will communicate timeously with all creditors in writing, as required.
� The BRP will meet with the Creditor’s Committee as and when required – all creditors will be
advised of these meetings and will see full discussion agenda items.
� Creditors may refer any queries to the BRP.
� Queries can be directed to the BRP at: [email protected]
