Business rescue seeks to save a company from financial ruin by rehabilitating it and preventing ultimate closure “in a manner that balances the rights and interest of all relevant stakeholders”. Business Rescue is the legal alternative to liquidation which is a court order issued by the Master’s Office that mandates a company’s assets to be sold and distributed to creditors. The liquidation process aims to satisfy the most creditors as possible while business rescue aims to save a distressed company.
Business Rescue Practitioners operate under the authority of the Companies and Intellectual Property Commission, and the legislative authority of Chapter 6 of the Companies Act No. 71 of 2008 which defines the purpose of Business Rescue proceedings as follows:
- “The temporary supervision of the management of the affairs, business and property of the company;
- a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and
- 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”
Business Rescue may be initiated voluntarily through a company resolution. Companies may also be forced into compulsory Business Rescue in terms of a court order in an application brought by anyone such as a creditor, shareholder or trade union affected by the financial distress of the company in question. Another process by which a company can be compelled into Business Rescue is is by court order during liquidation proceedings. When a company has been compelled into Business Rescue an affected person may apply to the court to have the resolution set aside.
The test of whether a company should be placed under Business Rescue is whether or not the company is:
- financially distressed according to its ability to meet its obligations; and
- whether there is a reasonable prospect of rescuing the company.
Once Business Rescue proceedings have begun, the court or an affected person may appoint a Business Rescue Practitioner who satisfies the requirements set out by the Companies Act No.71 of 2008. Once the Practitioner is appointed, they are granted the powers to take control of the management of the company and its assets and given limited time to formulate a Business Rescue Plan which outlines how the company may be saved from liquidation.
Contact Greyvensteins Attorneys for assistance with Business Rescue proceedings in Cape Town, Johannesburg and Port Elizabeth.