Business rescue aims to facilitate the rehabilitation of a company in financial distress. When your company is experiencing a financial setback, business rescue comes into play to create an optimum opportunity for your company to survive with reasonable prospects and return to its former financial health.
Chapter 6 of the Companies Act, 71 of 2008 regulates business rescue proceedings.
- What is business rescue?
Business rescue involves proceedings aimed to facilitate the rehabilitation of a financially distressed company by affording:
- That the business rescue practitioner temporarily supervises the company as well as the management of its affairs, business and property;
- A temporary moratorium (stay) on the rights of creditors and other claimants against the company or in respect of property in its possession;
- The development and implementation of a business rescue plan by restructuring its business, debt, affairs, liabilities and equity. The implementation of the business rescue plan must be voted on and approved by the affected persons.
2. What is the purpose of business rescue?
There are two purposes: Firstly, to rescue your company by restructuring the business to continue in existence, and secondly, it results in a better return to your company’s creditors or shareholders than liquidation.
3. When is a company deemed financially distressed?
A company is in financial distress when it appears:
- reasonably unlikely that the company will be able to pay all its debts as they fall due and payable within the immediately ensuing six months, or
- reasonably likely that the company will become insolvent within the immediately ensuing six months.
4. When can business rescue proceedings begin?
Business rescue proceedings begin when:
- the board passes a resolution that the company voluntarily commence business rescue proceedings and be placed under the supervision of the business rescue practitioner (section 129 of the Act), or
- an affected person applies to the court for an order to place the company under the supervision of business rescue practitioner (section 131 of the Act).
5. Who is an affected person?
Business rescue affects many important role players, e.g. shareholders, creditors, employees and their registered trade unions or representatives, all of whom have various rights throughout the business rescue process.
6. What happens once business rescue proceedings begin?
The appointed business rescue practitioner is conferred managerial control of the company in substitution for the board of directors and management, and then develops and implements the business rescue plan. The pre-existing management will continue to function during the process, however, under the authority and guidance of the business rescue practitioner.