Covid-19 & SMMEs

The notorious coronavirus, also known as COVID-19 is causing a slowdown in trade, not only in South Africa but worldwide. In the past weeks, we have seen a lock-down of countries such as China and Italy. South Africa is no exception, on the 23rd of March 2020, the President announced that SA will go on a 21-day lock-down as from midnight on the 26th of March 2020.

While the prevailing circumstances persist, companies are still expected to meet their financial commitments. It is no doubt that businesses will start experiencing cash-flow predicaments, with the Small, Micro and Medium Enterprises (SMMEs) suffering the most economic shock.

SMMEs are advised to engage with their creditors in an attempt to reach a new repayment agreement. Financial institutions such as Nedbank, have announced that they will grant their debtors a “repayment holiday”. This means that these financial institutions will suspend debt repayments or extend the loan period.

In addition to the above, the South African government has also made measures to assist SMMEs by establishing the Debt Relief Fund. The Debt Relief Fund is aimed at providing relief on existing debts, to assist SMMEs during the period of the COVID-19. For SMMEs to be eligible for assistance under the Debt Relief Fund, the applicant must demonstrate a direct link to the impact of COVID-19 on the business operations. This facility will also assist entities in meeting their overhead expenses. All these interventions will be structured to match the patterns of the SMMEs cash flows, as well as the extent of the impact suffered.

To strengthen monitoring and avoid abuse, SMMEs requiring assistance will be required to enrol on the SMME South Africa platform (www.smmesa.gov.za) which will go live on Tuesday, 24 March 2020.

In the event whereby a SMMEs did not utilise the above assistance and it’s on the edge of liquidation, a remedy would still be available in the Companies Act.  They must commence with business rescue to ensure that the company undergoes a formal restructuring process.

Disclaimer: The contents and information provided above are generalised and must not be acted upon as legal advice