Monday, 24 April 2017

South Africa's ASA on the precipice

Unless South Africa's Advertising Standards Authority receive $680 000 in funding before the end of the month, an application will be launched to liquidate the non-profit which will likely see the collapse of the self regulated body, and concern then that advertising and packaging disputes will be left to the state and the courts. The ASA and its business rescue partners are launching a fund raiser tomorrow for the bail-out.

Here is what you need to know about how the ASA got to this position, what they need to get out of it and how they propose restructuring the business going forward to ensure it remains solvent and relevant:
  • The ASA is a non profit body that has been in existence for 50 years, set up to assist self regulate advertising disputes. When working effectively it has allowed for speedy and relatively inexpensive dispute resolution for both competitors and consumers.
  • On 21 October 2016, the Advertising Standards Authority (ASA) went into Business Rescue (an intervention that attempts to prevent a company from its financial distress to prevent its liquidation).
  • The reasons why the ASA is in distress are:
    • lack of funding
    • lack of membership participation
    • high operational costs
    • costly litigation (the Herbex (pending) appeal and a damages claim of +-$1.3 million, set down for 6 March 2018)
    • decreasing use of its services (including competitor claims)
  • On 25 April 2017 is the ASA's second meeting of creditors and a special AGM has been called by the business recue practitioners to table a number of resolutions based on their research:
    • a new management team and board
    • a leaner organisation structure (from 20 to 13)
    • a long term funding model
    • a streamlined adjudication process
  • By 30 April 2017 the ASA needs to secure at least $384k to cover its historical debt. Within a short time thereafter, a further $296k is required to fund its operating capital in the immediate future. As a result a fund raising initiative is being launched at the special AGM.
  • The special AGM is taking place at the SAB World of Beer 15 President Street Newtown at 10am on the 25th.
  • The proposal for ongoing short term funding requires a commitment of $100k per month from its members in proportion to their ad-spend.
  • A failure to secure short term funding will result in an application to liquidate the ASA which will be to the detriment of creditors, up to 20 people will lose their jobs and the ASA services will be lost and/or left to the courts (with cost and other disadvantages) and/or government (which will mean the advertising industry will be regulated by the state).
  • In the longer term the ASA intends to cover its costs through a hybrid model which includes an advertising levy (66%) and a contractually negotiated rates from media (34%).
  • The ASA has applied to become an industry ombudsman under the Consumer Protection Act. This could alleviate its litigation challenges (over jurisdiction) and over time resolve some funding issues.
  • The ASA are attempting to also deal with potential jurisdictional challenges through stronger member contracts requiring media, marketers and advertisers to agree to be bound by their Codes (which incidentally include the Sponsorship Code).
  • Their are various risks to accepting the Business Rescue Plan - the retrenchment process will be costly, there is an unquantified risk of a damages claim which could bankrupt the ASA, the ongoing jurisdiction battles over non members is subject to an appeal which could severely hamper the ASA if the appeal by them is not successful.
Posted by Darren Olivier 24 April 2017 with some help from Afro-IP


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