BUSINESS RESCUE PROCEEDINGS
During this Covid-19 pandemic, there has been a lot of talk in the media
dealing with companies undergoing business rescue proceedings.
The automatic assumption is that the company is no longer viable and will
subsequently not be a going concern, this is, however, not always the case.
The question therefore is: What is Business Rescue and what does it entail?
In essence, business rescue is a procedure aimed to facilitate the
rehabilitation of a financially distressed entity. A business rescue
practitioner is appointed who then develops a business rescue plan, to
rescue the company, by restructuring its affairs. This may include a
restructure of the business, its property, debt, other affairs, liabilities
and equity.
A business therefore enters into business rescue when its in financial
distress. In terms of the Companies Act it defines “financial distress” as
either when it is reasonably unlikely that a company will be able to pay
its debts when they fall due for payment in the immediately ensuing six
months, or when it is likely that the company will become insolvent in the
immediately ensuing six months.
A business rescue practitioner is a person appointed, or two or more
persons jointly appointed, to oversee a company during business rescue. The
appointment of a business rescue practitioner is done in accordance with
s129 of the Companies Act.
S140 of the Companies Act lists the duties of the practitioner, which
include, but are not limited to, the following:
- has full management control of the company in substitution for its
board and pre-existing management; - may delegate any power or function of the practitioner to a person who
was part of the board or pre-existing management of the company; - may—
- remove from office any person who forms part of the pre-existing
management of the company; or - Appoint a person as part of the management of a company, whether to fill
a vacancy or not, subject to subsection (2); and
- Is responsible to—
- develop a business rescue plan to be considered by affected persons, in
accordance with Part D of this Chapter; and - Implement any business rescue plan that has been adopted in accordance
with Part D of this Chapter.
There are 2 ways a company can be placed in business rescue, namely:
- when the board of directors of a company resolves that the company
voluntarily
commence business rescue proceedings and be placed under the supervision of
a business rescue practitioner; OR
- when an affected person makes a formal application to court for an
order placing the company under supervision and commencing business
rescue proceedings. This application must be done if the company has
not commenced with business rescue proceedings. The aforesaid affected
party in its application needs to state the following:
- the company is financially distressed;
- the company has failed to pay over any amount in terms of an obligation
under or in terms of a public regulation, or contract, with respect to
employment related matters; or - it is otherwise just an equitable to do so for financial reasons, and
there is a reasonable prospect of rescuing the company.
As business rescue proceedings are complicated in nature, the decision
should not be undertaken without sound advice.
Our office will provide the requisite advice – feel free to contact us to
discuss the process.