Construction World June 2019

MARKETPLACE

HOW BUSINESS RESCUE AFFECTS CONSTRUCTION CONTRACTS

The number of organisations in business rescue is an indication of the economic decline in South Africa’s construction sector, with big names like Esor, Liviero, Basil Read, Group Five and NMC Construction in business rescue or liquidation. By Tsele Moloi, MDA Attorneys Associate

S tatistics South Africa has named 2018 as the construction sector’s worst year, which means business rescue will continue to be an unfortunate reality. Production slumped by 1,2% and the sector experienced its second economic decline in two years as a result of limited infrastructure spending by the government. The dearth of major infrastructure projects makes it difficult for major construction companies to continue operating. Business rescue is intended to rehabilitate a company that is financially distressed. But it is important to understand how business rescue proceedings and appointed business rescue practitioners can impact those who are contracted to the company. Generally, business rescue (among other things) provides temporary supervision of the management of a company’s affairs, business and property; an interim freeze on any legal proceedings against the company; and a business rescue plan to restructure it with a view to saving the business. The appointed business rescue practitioner develops and implements a business rescue plan which must be published within 25 days after his/her appointment and this plan is approved by affected parties. Impact on contractors – reduced or delayed payments Business rescue can become a burden for contractors and subcontractors. While the company’s management remains in place, the business rescue practitioner has full control over the company. For contractors and subcontractors, this means that the relationships they have are suddenly suspended. The process of making payments is handled by the business rescue practitioner, despite any previous arrangements that may

have been in place. While a company in business rescue must repay its debts, the process provides breathing space to delay pre-existing debts. In construction, time is money and contractors operate on the basis of decisions being made without delay. Creditors’ pre-existing debts will be paid according to the approved plan once the business has been rescued. In practice, this means that payment may likely be significantly later than expected, as per the contract terms, and it could also mean a reduced payment. The company continues to operate during business rescue and contractors or subcontractors must comply with their obligations under the specific existing contract. Yet, understandably, many will be reluctant to continue works on the same terms and conditions as those agreed prior to the commencement of business rescue. The business rescue practitioner has wide-ranging powers, including the ability to unilaterally amend, suspend or cancel an existing contract. Should this happen, a contractor or subcontractor can make a claim for damages to the company under business rescue. But this can have a dramatic impact, as contractors operate in a credit environment, meaning they are only paid when works are completed. While it is widely understood that business rescue is a positive step in guiding companies towards rehabilitation, the overall benefits may not extend to everyone. Contractors and subcontractors should arm themselves with information, as it could have a significant impact on their own businesses. The considerations raised here are just a small part of the potential impact of business rescue on the company and its contracting parties – subcontractors and contractors alike. Business rescue is a complex legal area and is best navigated with the assistance of an attorney as soon as the process commences. 

SAQA accreditation RENEWED

The Institute for Timber Construction South Africa (ITC-SA), South Africa’s watchdog for the engineered timber construction sector, recently received renewed recognition from the South African Qualifications Authority (SAQA) as a Professional Body.

A s a prominent custodian of the timber construction industry in South Africa, the ITC-SA is empowered, through its ongoing SAQA accreditation,

as set out in the National Qualifications Framework Act (NQF Act 67 of 2008) as amended. As such, the ITC-SA is bound to regulate and monitor its members’ individual profiles and performance with regards to training undertaken and completed for professional recognition. This training is set according the ITC-SA’s

to make meaningful contributions to a healthier construction industry, support the consumer in their liaisons with the professional trade and hold its membership to a high standard. The ITC-SA is proud to have again received recognition from SAQA as a professional body. This recognition also extends to several professional designations under its purview, including, Certified Roof Erector, Certified Roof Inspector, Certified Roof Fabricator, Accredited Timber Engineer, Certified Roof Structure System Software Developer, Certified Timber Frame Builder, and Certified Timber Roof Truss Designer. The ITC-SA has maintained its accreditation with the SAQA since 2013 and in this capacity must comply with all the requirements

criteria and approved by SAQA, and is crucial for the promotion and monitoring of continuous professional development (CPD) for members to meet the relevant professional designation requirements. More than this, the ITC-SA is there to ensure consumer protection in the use of timber engineered products in contracts entered into with its membership and to regulate the professional conduct of its members. Where prima facie evidence confirms professional misconduct, in order to protect the consumer and the reputation of the industry, the ITC-SA shall apply proper sanctions. 

6

CONSTRUCTION WORLD JUNE 2019