The Fundamentals of Business Rescue
The business rescue process in South Africa is a legal mechanism designed to provide financially distressed companies with a chance to rehabilitate and restructure their operations to avoid liquidation. It is governed by Chapter 6 of the Companies Act 71 of 2008. The aim is to accomplish this in a manner that balances the interests of all stakeholders, including creditors, employees, and shareholders.
There are essentially two pathways to having business rescue proceedings initiated. Either by way of a resolution by the company’s board of directors in terms of section 129 of the Companies Act or by application to the court by an affected person. The company must be financially distressed, i.e., unlikely to be able to pay its debts as they become due within the next six months or reasonably likely to become insolvent in the near future.
The Business Rescue Process
Once a company is placed under business rescue, a qualified business rescue practitioner is appointed to take control of the company’s affairs. The practitioner’s role is to oversee the process, identify viable restructuring options and develop a business rescue plan that outlines the proposed strategies for rescuing the company. The plan may involve measures such as restructuring the company’s debt, renegotiating contracts, selling assets, and/or implementing operational changes.
The plan is presented to affected persons, including creditors and shareholders, for approval. Creditors’ votes are based on the value of their claims. Once approved it becomes binding on all parties. The business rescue practitioner then oversees the implementation of the approved plan. They monitor the company’s progress and are also required to report on the progress of the plan’s execution to stakeholders and the court. While a company is subject to the process, a temporary moratorium is placed on legal proceedings against the company. This allows the company breathing room to focus on its attempts at recovery without the threat of legal action.
The business rescue process ends when the practitioner believes that the objectives of the plan have been achieved, or if it becomes clear that the plan is unlikely to succeed. In such cases, the company can either return to normal operations, undergo liquidation, or pursue other available options.
Beware the Common Pitfalls
When a company is clearly in financial distress it’s crucial to initiate the process promptly. Delaying the process may only worsen the financial situation and increasingly limit the options available for recovery. Business rescue is a formal legal process requiring specialised knowledge of legal procedures, business principles, and operations. Attempting to navigate the process without specialised legal advice can lead to costly mistakes and missed opportunities to the detriment of all parties.
Failing to provide the business rescue practitioner with accurate and complete financial information may severely hinder the process. It’s crucial for the business rescue practitioner to have a clear understanding of the company’s financial status so that they can accurately assess the viability of proposed restructuring plans.
The process in South Africa is governed by specific legal requirements. Failing to comply with these requirements can lead to unnecessary legal complications. While business rescue is valuable, it’s not always the best solution for every distressed company. An experienced legal professional will consider all the options available including liquidation or restructuring.
Navigating the over-indebtedness in South Africa requires careful planning, effective communication, and collaboration with professionals who have expertise in both business and legal aspects. Avoiding these common mistakes can improve the likelihood of a successful turnaround and the company’s long-term viability.
Attorneys that Specialise in Insolvency Law
If your company’s debt has become totally unmanageable contact attorneys with a long track record of resolving problems with debt. Francois Uys Incorporated Attorneys are specialist debt and insolvency lawyers in South Africa. We have been helping indebted companies for decades consistently delivering the best possible outcomes. We guide you while protecting your interests all the way. Get professional help and contact Francois Uys Inc Attorneys for expert advice.
Disclaimer: This article is for information purposes only. It does not constitute legal advice and cannot be used to make any legal or business decisions. For advice on the topics of insolvency, company liquidation, business rescue, sequestration, and debt restructuring contact Francois Uys Inc Attorneys. The information is relevant as of the date of publishing.
