business rescue

Rescue your business

Rescuing your Business
By Benno de Klerk | Posted on 25 October 2012

The Companies Act of 2008, which commenced on 1 May 2011, brought about major changes to South-Africa’s Company Law.

One of the positive changes for Companies that are financially in distress is the concept of Business Rescue.

“Business Rescue” means proceedings to facilitate the rehabilitation of a Company that is financially distressed, by providing for the temporary supervision of the Company and of the management of its affairs, business and property, by a Business Rescue Practitioner. It also entails a temporary suspension on the rights of claimants to take legal action against the Company, or in respect of property in its possession.

Business Rescue also entails the development and implementation, if approved by the creditors, of a plan to rescue the Company, by restructuring its affairs, business, property, debt and other liabilities, in a manner that maximises the likelihood of the Company continuing in existence on a solvent basis or, if it is not possible for the Company to so continue in existence, results in a better return for the Company’s creditors or shareholders, than would result from the immediate liquidation of the Company.

In essence what this entails is that when a Company becomes financially distressed, to the extent that it no longer seems possible to meet its immediate commitments in the short term, instead of possibly losing its operating assets to creditors or being liquidated, a plan can be developed by a Business Rescue Practitioner to save the Company and get it on strong financial footing again or to ultimately secure a better dividend for creditors and shareholders.

“Financially distressed” means that it appears to be reasonably unlikely that the Company will be able to pay all of its debts as they come due and payable within the next six months, or if it appears to be reasonably likely that the Company will become insolvent, within the next six months.

A Company (as well as a Close Corporation), can go under Business Rescue, whenever it resolves to do so, if the Board of Directors has reasonable grounds to believe that the Company is financially distressed and there appears to be a reasonable prospect of rescuing the Company.

Once a Company has adopted such a Resolution and filed such a Resolution with the Companies and Intellectual Property Commission, the Company must publish a Notice of the Resolution, together with a sworn statement setting out the facts relevant to the grounds on which the Board’s Resolution was founded, as well as appoint a Business Rescue Practitioner.

A Business Rescue Practitioner is a person registered as such in terms of the Act, with the above mentioned Commission.

The Business Rescue Practitioner then takes full management and control over the Company, in substitution for its Board and pre-existing management.

A Business Rescue Practitioner has wide powers in managing and trying to rescue the Company. For example, a Business Rescue Practitioner may remove from office any person who forms part of the pre-existing management of the Company and may also appoint persons into management.

The Business Rescue Practitioner must devise and implement a Business Rescue Plan and must also meet with all creditors to obtain their support for the Business Rescue Plan.

If after performing his/her investigation into the Company’s affairs, the Business Rescue Practitioner finds that there is no reasonable prospect for the Company to be rescued, the Practitioner must so inform the Court, the Company and all creditors and other affected persons and then apply to the Court for an order discontinuing the Business Rescue proceedings and closing the Company into liquidation.

During Business Rescue proceedings, no legal proceedings against the Company or in relation to any property belonging to the Company, may be commenced or proceeded with in any form, except with the written consent of the Business Rescue Practitioner, or with leave of the Court.

In practice this means that whilst under Business Rescue proceedings, creditors may not attach and remove the Company’s property and the property is in other words left in the Company’s hands so as to try and generate income and recue the Company.

During Business Rescue proceedings, directors of a Company, (or the members of a CC), must continue to exercise their functions, but subject to the authority and directions of the Business Rescue Practitioner.

Should a director fail to give reasonable assistance in this regard, the Business Rescue Practitioner may apply to Court for an order removing the person as a director.

Business Rescue proceedings end when the Court sets aside the Resolution or converts the proceedings to liquidation proceedings. Business Rescue proceedings also end when the Business Rescue Practitioner has filed with the Commissioner a Notice of the Termination of Business Rescue proceedings.

Creditors are not to be left out in the dark during Business Rescue proceedings and have a number of rights in terms of the Act. For example, creditors have the right to vote to amend, approve or reject the proposed Business Rescue Plan and if it is rejected, a right to propose the development of an alternative Plan. The creditors are entitled to be consulted by the Business Rescue Practitioner, during the development of the Business Rescue Plan.

Creditors can also approach the Court for an order setting aside the Resolution to adopt Business Rescue proceedings, if the procedures as prescribed by the Act, are not followed.

Business Rescue proceedings is a new concept in our Company Law, which affords Companies which are financially distressed, but where there is a definite light at the end of the tunnel, to go under Business Rescue proceedings which allows them protection, in the interim, from creditors. The aim of Business Rescue proceedings is therefore to save the Company.

As with all other business decisions involving the future of any Company, the decision to go under Business Rescue must be taken timeously, whilst there is still hope that a Company may be saved.