Written by M Snyders
31 May 2022

WHAT IS BUSINESS RESCUE?

Business rescue proceedings are instituted when there is a need to rehabilitate a financially distressed company. The rehabilitation process allows the company to restructure its affairs under the management of a business rescue practitioner. The restructuring process takes place in accordance with the business rescue plan. Chapter 6 of the Companies Act 71 of 2008 makes provision for the business rescue procedure.

WHAT IS THE PURPOSE OF BUSINESS RESCUE?

  • To allow the company space to restructure its affairs to allow for the likelihood of the company’s continued existence;
  • It is an alternative procedure to liquidation proceedings, in which case the company would be liquidated and thus cease trading, its assets being sold and distributed to creditors.
  • Should the company not be in a position to exist, the business rescue will result in a better return for the company’s creditors and shareholders, a result that would not have materialised under liquidation proceedings.

WHAT IS A BUSINESS RESCUE PRACTITIONER?

A business practitioner will be appointed once business rescue proceedings commence. The business practitioner can be one or more persons who can be jointly appointed. The business practitioner will supervise the company during the business rescue proceedings. Section 138 in the Companies Act provides for the qualifications of a business rescue practitioner.

WHEN SHOULD A COMPANY COMMENCE RESCUE BUSINESS RESCUE?

A company should enter into business rescue proceedings when it becomes apparent that it is financially distressed as per the definition contained in the Companies Act. In terms of the aforementioned definition, a company will be considered financially distressed where it appears to be reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable within the immediately ensuing six months. A company will also be considered financially distressed where it appears reasonably likely that it will become insolvent within the immediately following six months.

HOW DOES A COMPANY VOLUNTARILY COMMENCE BUSINESS RESCUE PROCEEDINGS?

  • The business rescue resolution must be adopted.
  • The resolution must be filed at the Companies and Intellectual Property Commission.
  • A notice of resolution must be published to every affected person/company, which includes but is not limited to:
    • Shareholders;
    • Creditors;
    • Registered trade unions representing employees;
    • Employees that are not represented by such trade unions.

It must always be kept in mind that the purpose of business rescue is to provide the company with room to restructure its financial affairs to ensure its continued existence. The methodology behind the process balances the rights and interests of all relevant stakeholders. Contact one of our attorneys at Burger Huyser Attorneys to assist you with any questions that you may have relating to business rescue proceedings.

DISCLAIMER: Information provided in this article does not, and is not intended to constitute legal advice. READ MORE