What is Business Rescue?
Business rescue proceedings are proceedings intended to assist the rehabilitation of a company that is struggling financially.
Additionally, they provide temporary supervision of the company, and the management of its financial affairs, business and property, by a business rescue practitioner or business consultant.
Furthermore, they provide a temporary moratorium (stay) 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 business rescue plan to rescue the company by restructuring its:
- Other liabilities;
- and equity.
What is the purpose of Business Rescue?
The aim of a business rescue is to restructure the affairs of a company in such a way that either it increases the probability of the company staying in business on a solvent basis, or consequently results in a greater return for the creditors of the company than they would ordinarily receive as a result of insolvency and company liquidation.
Is Business Rescue suitable for all companies?
Unfortunately, proceedings are not necessarily suitable for all types of businesses.
The type of business for the most part will determine whether or not the business is a suitable candidate for business rescue.
For example, companies involved in retail are more suitable for business rescue than companies that have been set up for property investment purposes. Retail companies have a “business” that can be rescued, while property investment companies may not.
What is an affected person?
An affected person is a:
- Employee (or their representative);
- or a registered trade union representing employees of the company.
Affected persons are significant role players in the process. In addition, affected persons have a number rights throughout the business rescue process.
What is the criteria for Business Rescue?
The criteria for whether or not a company should be placed in business rescue depends on whether or not the company is financially distressed.
'Financially distressed' defined by the Act – (section 128(1)(f))
The Act defines the words 'financially distressed' to mean that:
- it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months (commercial insolvency);
- or it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months (factual insolvency).