What is Business Rescue?
Business rescue is a formal process by means of which a company experiencing financial difficulties is provided with an opportunity to restructure its operational model. The process is established in terms of the Companies Act (No. 71 of 2008) and is aimed at providing an opportunity to improve the company’s cash flow and trade its way into liquidity or into a position that would be more beneficial for the company’s creditors.
In South Africa, the process is created and governed by the provisions of Chapter 6 of the Companies Act which places a moratorium on legal actions or liquidation measures against companies experiencing financial distress. It allows companies to alleviate their debt burden and improve their financial outlook. The primary aim is to produce the best possible outcome for the affected parties.
Proceedings attempt to facilitate the rehabilitation of a company by providing temporary supervision, and management of company affairs, including its operations and assets. An approved business rescue practitioner (BRP) is appointed to facilitate and control the process.
A temporary moratorium (stay) on the rights of claimants against the company or in respect of property in its possession is brought into effect and a business rescue plan is developed to assist in restructuring its operations, property, debt, liabilities, and equity.
In South Africa, this process must be conducted in partnership with an approved BRP. Their role is to assist the financially stressed company to choose optimal rehabilitation strategies. The Act defines “financially distressed” to mean that it is reasonably unlikely that the company will be able to pay all its debts as they become due and payable within the immediately ensuing six months or it is likely that it will become insolvent within the immediately ensuing six months.
The Purpose of Business Rescue
Business rescue is aimed at restructuring the activities of a company to improve the possibility of it regaining solvency and continuing trading or to ensure a better return for the affected parties. Those affected refer to the role players in the process, namely creditors, employees (or their representatives), shareholders, owners, or registered trade unions representing the company’s employees. In terms of the Companies Act, affected persons have various rights during the process as it tries to achieve a better outcome for the affected parties.
Why Not Liquidation?
Liquidation and business rescue are both options available to companies in financial distress. They are primarily aimed at preserving value for the stakeholders if the company experiences financial difficulty.
There are fundamental differences in how this objective is pursued. Liquidation looks to sell the company’s assets and distribute the proceeds to creditors. Business rescue is focused on trying to rehabilitate the company and return it to financial health.
Liquidation is typically a more formal and structured process while business rescue tends to be a more flexible and informal process. At the end of the liquidation process, the company ceases to exist while a successful business rescue may revive the company and allow it to continue operating.
It’s Vital to Speak to a Legal Expert Timeously
If your company will have a good chance of trading its way out of its current financial distress, then business rescue can provide the short-term relief needed to allow your company to recover and survive.
Francois Uys Inc. Attorneys has a well-established track record of success with these matters. We have completed over 8000 cases and offer expert facilitation, implementation, and ongoing guidance to clients. Our team of experienced Attorneys will do their utmost to save your company from liquidation. With 33 years of dedication to companies in financial distress, we can provide expertise and assistance on any aspect of business rescue and provide you with the optimal outcome for your circumstances.
It is of the utmost importance to act quickly should your company be experiencing financial distress as the Companies Act offers very short periods in which to act. Book an appointment with Francois Uys Inc Attorneys today.
Disclaimer: This article is for information purposes only. It does not constitute legal advice and cannot be used to make any decisions. For advice on the topic of business rescue contact Francois Uys Inc. The information is relevant as of the date of publishing.
