Business Rescue

Business Rescue

What is it?

Business rescue is a concept that came into effect with the Companies Act 71 of 2008. It is a legal process to assist financially distressed companies to rehabilitate.

The purpose of Business Rescue is twofold, the ultimate goal is to have the business restructured and saved from being liquidated, so that the Company may continue the business as normal. Alternatively, it is also to have a better outcome for creditors than if the Company were to be liquidated without an attempt at Business Rescue.

The rehabilitation takes the form of three processes. The first being that a Business Rescue Practioner temporarily manages all its affairs; secondly any creditors’ claims against the Company are paused and lastly a Business Rescue is implemented to change the way the business is run in order to have better results.

When and Why?

The most important question is how to determine whether a Company qualifies for Business Rescue. The Act as referred to above defines the requirement as a Company that is in financial distress. This practically means that within the next 6 months the Company will not be able to pay its debt and will likely become insolvent.

As discussed above the purpose of Business Rescue is to try to rehabilitate the Company; therefore, it is ideal that the proceedings for the Business Rescue start as soon as the Company realises that there are financial problems.

The Court very aptly stated in the case of Welman v Marcelle Props 193 CC JDR 0408 (GST), held in the South Gauteng High Court at Johannesburg, that “business rescue proceedings are not for terminally ill close corporations. Nor are they for chronically ill. They are for ailing corporations, which given time will be rescued and become solvent”. 

How?

There are two ways in which the process can be started.

  1. The Company’s Directors decide to voluntarily apply for Business Rescue.
  2. An affected person makes an Application to Court for the Company to be placed under Business Rescue.

Who are Affected Persons?

  1. Shareholders;
  2. Creditors;
  3. Employees;
  4. Registered Trade Unions;

Can Business Rescue be Objected to?

In terms of the Act it does allow for any affected person to apply to Court to have the Business Rescue stopped. However, there are a number of aspects that must be proved first. Some of which are listed below;

  • There is no prospect of rescuing the Company;
  • The Company was never in financial distress;
  • Procedural requirements have not been met;
  • The Business Rescue Practioner does not meet the relevant requirements and/or is not independent of the Company;
  • Business Rescue Practioner is to provide security.

When does it end?

Business Rescue can end in three ways. The Business Rescue Plan can be rejected, the Court could set aside the Business Rescue after an objection is made, or the Business Rescue Practioner submits the relevant form to state that the process has been completed.

The current economic climate in South Africa has been causing many Companies to fall into financial distress, but there is a solution, that is better than Liquidation – which in most cases is not good for anyone involved, even the Creditors. It is therefore important to know the options you have as an affected person in a Company suffering with financial distress.

 

Aurelia Singh

Practising Attorney