Business Rescue in South Africa is a legal process designed to rehabilitate financially distressed companies in order to prevent their liquidation and promote their ongoing viability. It was introduced in terms of Chapter 6 of the Companies Act of 2008, as a means of providing companies with an opportunity to restructure and reorganize their affairs under the supervision of a business rescue practitioner.
The primary goal of business rescue is to save businesses from insolvency while preserving jobs, assets, and economic value. Here's an overview of how business rescue works in South Africa:
Initiating Business Rescue:
Company Resolution: A company's board of directors, members, or creditors may resolve to initiate business rescue proceedings if the company is financially distressed.
Court Application: Alternatively, any affected person, such as a creditor or employee, can apply to a court for a business rescue order if they believe that the company is financially distressed.
Business Rescue Practitioner:
Appointment: Once business rescue proceedings are initiated, a business rescue practitioner is appointed to oversee the process. The practitioner must be a registered professional with expertise in business rescue and turnaround strategies.
Duties and Powers: The practitioner takes control of the company's management and operations to develop and implement a business rescue plan. They have various powers to restructure the company's affairs, including the authority to raise capital, enter into agreements, and make operational changes.
Business Rescue Plan:
Development: The business rescue practitioner, with input from stakeholders, develops a business rescue plan outlining how the company's financial distress will be addressed, how creditors will be treated, and how the company will be restructured to become viable again.
Creditor Approval: The plan is presented to the creditors for approval. Creditors representing at least 75% of the voting interests must agree to the plan for it to be adopted.
Moratorium: During the business rescue process, a temporary moratorium is placed on legal actions and proceedings against the company. This gives the company breathing space to restructure without facing immediate legal actions from creditors.
Monitoring and Implementation:
Supervision: The practitioner oversees the implementation of the business rescue plan, ensuring that it is carried out as agreed.
Reporting: Regular reports are provided to creditors, shareholders, and the court on the progress of the business rescue process.
Outcomes:
Successful Business Rescue: If the business rescue plan is successfully implemented, the company may continue to operate as a going concern, and its financial health is restored.
Failure: If the business rescue process fails and it becomes clear that the company cannot be rescued, the process may be terminated, and the company could face liquidation.
Business rescue provides a legal framework for companies facing financial distress to explore alternatives to liquidation. It aims to balance the interests of stakeholders while maximizing the chances of preserving the company's value and contributing to the economy.
Michael White