- Business rescue is a better alternative to liquidation as it can result in a better return to creditors than liquidation.
- Business rescue provides the company in financial distress with a moratorium on the rights of claimants against the company.
This moratorium offers the company a breathing space in which to restructure its affairs in order rehabilitate the company.
- Business rescue provides the company with an opportunity to compromise its debts as part of the business rescue plan.
What is Business Rescue?
Business Rescue means the proceedings aimed to facilitate the rehabilitation of a company that is financially
distressed by providing for:
- The temporary supervision of the company, and the management of its affairs, business and property
- A temporary moratorium on the rights of claimants against the company or in respect of property in its possession.
- The development and implementation, if approved, of a plan to rescue the company by restructuring its affairs,
business, property, debt and other liabilities, and equity, in a manner that maximises the likelihood of the company
continuing in existence in a solvent manner, or, if it is not possible for the company to so continue in existence,
results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation
of the company.
What is a Business Rescue Practitioner?
A Business Rescue Practitioner is a person or persons jointly appointed, to oversee a Company during Business Rescue proceedings
What is an affected person?
An affected person is a shareholder, creditor, employee (or their representative) or a registered trade union representing employees of that company.
What is the test for Business Rescue?
In order for a company to qualify for Business Rescue, the company must be financially distressed and there should be a reasonable prospect for rescuing the company.
Financial distress means that:
- It appears to be reasonably unlikely that the company will be able to pay its debts as they become due and payable within the immediate ensuing six months; or
- It appears to be reasonably likely that the company will become insolvent within the immediate ensuing six months.
What is a Business Rescue Plan?
A Business Rescue Plan is a plan developed and, if approved, implemented by the Business Rescue Practitioner,
which details the manner in which the practitioner envisages that the company will be rescued.
How is a Business Rescue Plan adopted?
A proposed Business Rescue Plan will be approved on a preliminary basis if it is supported by the holders
of more than 75% of the creditors’ voting interests that were voted and when the votes in support of the
proposed plan included at least 50% of the independent creditors’ voting interests, if any, that were voted.
When should a company commence business rescue?
A company should commence business rescue proceedings at the first signs of it being financially distressed,
within the meaning of the Act. Financial distress is 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. The earlier a company commences business
rescue, the higher the chance of rescuing the company.
How is a company placed in business rescue?
A Company can be placed in business rescue by means of a board resolution whereby the board of directors of a company
resolves that the company voluntarily commence business rescue proceedings and that the company be placed under supervision.
A Company can be placed in business rescue by a court order. A court order is as a result of an affected person
applying to the court to place the company under supervision.
How long do business rescue proceedings last?
Section 132 of the Act states that if business rescue proceedings have not ended within three months after the start of those
proceedings, or such longer time as the court, on application by the practitioner, may allow, the practitioner must:
- Prepare a report on the progress of the business rescue proceedings, and update it at the end of each subsequent month until the end of those proceedings; and
- Deliver a report and each update in the prescribed manner to each affected person; and to
- The court (if the proceedings have been the subject of a court order); or
- CIPC, in any other case.
When does business rescue begin?
Business rescue proceedings commence when the company:
- Files a resolution to place itself under supervision in terms of section 129 of the Act; or
- Applies to court for consent to file a resolution in terms of section 129(5)(b); or
- A person applies to court for an order placing the company under supervision in terms of section 131(1); or
- A court makes an order placing a company under supervision during the course of liquidation proceedings or proceedings to enforce a security interest as contemplated in section 131(7).
When does business rescue end?
Business rescue proceedings end when:
- The court sets aside the resolution or order that began the business rescue proceedings or when the court converts business rescue proceedings into liquidation proceedings;
- The business rescue practitioner files a notice of termination of business rescue proceedings (Form CoR125.2) with CIPC; and
- A business rescue plan has been proposed and rejected and no affected person has acted to extend the proceedings in any manner contemplated by the Act; or
- A business rescue plan has been adopted and the business rescue practitioner has subsequently filed a notice of substantial implementation of the plan (Form CoR125.3).
Failure of a company to commence business rescue proceedings when it is in financial distress?
If the board of a company has reasonable grounds to believe that the company is financially distressed, but the board has not adopted
a resolution contemplated in this section, the board must deliver a written notice to each affected person, setting out the criteria
referred to in section 128(1)(f) that are applicable to the company, and its reasons for not adopting a resolution contemplated in this section.
What effect does business rescue have on employees?
Section 136 of the Act provides that employees of the company immediately before the beginning of those proceedings continue to be so employed on the same terms and conditions, except to the extent that:
- Changes occur in the ordinary course of attrition; or
- The employees and the company, in accordance with applicable labour laws, agree different terms and conditions; and
- Any retrenchment of any such employees contemplated in the company's business rescue plan is subject to section 189 and 189A of the Labour Relations Act, 1995 (Act No. 66 of 1995), and other applicable employment related legislation.
What effect does business rescue have on shareholders?
During business rescue proceedings, an alteration in the classification or status of any issued securities of a company, other than by way
of a transfer of securities in the ordinary course of business, is invalid except to the extent that the court, or the business rescue plan,
directs otherwise.
What effect does business rescue have on contracts?
Section 136 also aims to regulate the position of the company in respect of its obligations in terms of any existing contracts that may apply at the time the business rescue proceedings commence.
Section 136(2) provides that the business rescue practitioner may, during business rescue proceedings, and despite any provision to the contrary in an agreement:
- Entirely, partially or conditionally suspend, for the duration of the business rescue proceedings, any obligation of the company that arises under an agreement to which the company was a party at the commencement of business rescue proceedings, and would otherwise become due during the proceedings.