Business Rescue
(Sect 129 – 137)
The new Companies Act of 2008 provides for a company to be placed under “business rescue” (Chapter 6) in order to try and give effect to a viable process of rescuing a company from “financial distress”, as an alternative to liquidation and to replace the process of judicial management.
“Business Rescue” means proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for:
- The temporary supervision of the company and of 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 of a plan to “rescue” the company by restructuring its affairs, business, property, debt and other liabilities in a manner that maximizes the likelihood of the company continuing in existence, results in a better return for the company’s creditors or shareholders, than would result from the immediate liquidation of the company.
“Financially distressed” means that:
- It appears reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable within the immediately ensuing 6 (six) months; or
- It appears to be reasonably likely that the company will become insolvent within the immediate ensuing six months.
The business rescue process can be initiated either by the board of that company or by an order of court upon application, and in circumstances where the company is financially distressed. Business Rescue can also be initiated by third parties who are referred to as “affected persons” by application to court. Affected persons include employees of the company, shareholders, creditors and registered trade unions of employees.
Business Rescue Practitioners
(Sect 138-143)
A business rescue practitioner must be appointed to oversee the management, business and affairs of the company on a temporary basis, and to develop and implement a business rescue plan.
During a company’s business rescue proceedings, the practitioner in addition to any other powers and duties set out in Chapter 6 of the Companies Act:
- Has full management control of the company;
- May delegate any power or function to a person who was part of the board or pre-existing management;
- May remove from office any person who forms part of the pre-existing management of the company or appoint a person, whether to fill a vacancy or not;
- Must develop a business rescue plan and implement such plan, if approved.
If the business rescue proceedings concludes with an order placing the company in liquidation, any person who has acted as the business rescue practitioner may not be appointed as liquidator of the company.
Business Rescue Plan / Process
(Sect 150-154)
The business rescue plan must be developed and implemented by the business rescue practitioner and affected persons are entitled to provide input into such plan. The plan will be implemented if approved by creditors and shareholders to the extent that the rights of creditors and shareholders are affected.
When the business rescue plan has been substantially implemented, the practitioner must file a notice of the substantial implementation of that plan.
If a company’s business rescue proceedings have not ended within 3 (three) months after the start of those proceedings, or such longer time as the court 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 the report and each update in the prescribed manner to each affected person, and to the:
- Court, if the proceedings have been started by court order; or
- Commission, in any other case.
Contact the head of Business Rescue:
Alastair Macduff
+ 27 76 977 3066
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www.unleashconsult.com