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NATIONAL COUNCIL OF PROVINCES
QUESTION FOR WRITTEN REPLY
QUESTION NO.: 504
DATE OF PUBLICATION: 19 NOVEMBER 2010
Mr K A Sinclair (COPE-NC) to ask the Minister of Economic Development:
Whether, with reference to his departmentâs 2009-10 Annual Report, the fund
for companies in distress has made any meaningful progress in assisting
such companies in the 2009-10 financial year; if not, why not; if so, (a)
what amount of funding was (i) made available for this fund and (ii) used
for companies which qualified, (b) what were the criteria for qualification
and (c) what are the further relevant details?
CW613E
REPLY
(a)(i) A R6,1 billion Distress Fund was established through the IDC for
companies which were in distress as a result of the Economic crisis of
2008. The funding can be used to finance a businessâ working capital
requirements and operational expenses; guarantee loans or overdrafts;
finance capital expenditure to improve a companyâs viability; or fund
equity where a company was considered to be under-capitalised. The money
was made available by the Industrial Development Corporation (IDC), which
also administers the Fund. Since the inception of the Fund significant
progress has been made in assisting companies.
(ii) By the end of March 2010 the Fund had benefited a total of 41
companies and had approved funding to the value of R1,7 billion and it
reported that it saved or created 14 168 jobs.
(b) The Criteria used for companies to qualify were as follows:
⢠Companies to be considered for assistance should be experiencing
cyclical difficulties due to the crisis. These companies have been
profitable in the past, but their financial performance has been
negatively impacted by the downturn.
⢠If the company is in a start-up phase and has therefore not yet
achieved profitability, assisting the company could be considered
provided its performance was in line with budgets of its initial
business/project plan and the IDC is satisfied that the business was
performing in line with what could be expected before the economic
crisis.
⢠The company should be experiencing cash-flow problems, declines in
profitability, or even a trading loss for up to 6 to 12 months.
⢠The company must have a clear turnaround plan which contributes to the
sustainable recovery of the business.
⢠Latest audited financial statements and latest management accounts are
required.
Companies experiencing distress caused by structural problems or other
problems would not be considered for IDC intervention under the rules of
the fund.
Certain conditionalities were imposed on firms receiving state support.
These included: appropriate restraint in executive pay during the
assistance period; a moratorium on retrenchments for the duration of the
assistance period unless they were essential for the firmâs survival; a
commitment to local procurement; restrictions on replacing funding from
other financiers; and a commitment to social dialogue and compliance with
labour standards.
(c) The EDD has worked closely with the IDC to ensure that the Fund was
publicised as rapidly as possible. This included convening 15 workshops
with sectors in distress to explain the fund to stakeholders particularly
from business, developing an information pamphlet and making presentations
to trade unions to provide information on the fund.
The IDC made other changes to improve uptake of the fund, including:
waiving of fees payable by companies, making available grant funding (on a
cost sharing basis) for companies to appoint turnaround specialists to
assist them with developing turnaround plans, waiving the requirement for
sureties from existing stakeholders, and reducing security compared to
banks.