The Future of Liquidations in South Africa: Emerging Trends and Challenges
In the economic world, liquidation refers to “the process of bringing a business to an end and distributing its assets to claimants.” However, while liquidation has long been connected to businesses ending, the future is leaning towards more progressive approaches, including business rescue plans. More and more companies are also embracing technology to streamline these processes. As such, liquidation processes are shifting, and the future of economics in the country is moving towards greater levels of economic sustainability, which seek to offer a lifeline to businesses struggling financially.
Let’s explore liquidations in South Africa and the current changes that are set to shift the economic landscape.
Moving Towards Business Rescue
In recent years, we have seen a shift in traditional liquidation processes, with more focus on business rescue when viable. Business rescue is a process where companies in distress can be reorganised and rehabilitated to become profitable under the guidance of a specialist business rescue practitioner. Business rescue in South Africa is governed under the Companies Act 71 of 2008, and a company is regarded as in financial distress if it meets these criteria:
- It cannot pay debts as they arise within the next six months.
- It is likely to become insolvent and not meet its liabilities in the next six months.
However, for business rescue to be viable rather than insolvency, the following must also be true:
- The company has a clear and viable action plan to get back to profitability.
- A business rescue plan would result in better returns for stakeholders, including creditors.
Why the Move Towards Business Rescue?
The move towards business rescue – where viable – is centred around a more rehabilitative approach, whereby companies seek to preserve jobs, protect their creditors, and foster a greater level of long-term economic growth. While liquidations in South Africa are sometimes the only option if a company is in severe financial distress and unable to recover, business rescue offers a more positive avenue for many companies.
Business rescue, when possible, has several benefits, including:
- The preservation of jobs and livelihoods.
- Oftentimes a better financial outcome for creditors than traditional liquidation.
- The company directors can continue to play an active role within the business.
- Businesses who are undergoing business rescue will get temporary relief from any legal action instigated by creditors.
- A greater focus on the future economic sustainability of the business.
Our experienced team at Francois Uys Attorneys in Pretoria can happily advise you on the best plan of action if you are considering business rescue. With over 3 decades in the economic legal sector, we are always ready to help.
The Increasing Role of Technology in Business Liquidation and Business Rescue
As the world begins to rely more heavily on machine learning and artificial intelligence, these technological advancements have helped to automate and modernise the process in South Africa. Various digital tools are utilised to streamline processes, including specialised case management systems that can better manage communication between businesses, liquidators, creditors, and other important stakeholders. This can streamline cumbersome administrative processes and optimise the process for speedier results.
Chat with Our Attorneys
The landscape for liquidations in South Africa is always changing, and in some instances, it’s moving towards business rescue approaches and greater integration of technology. If you are facing insolvency, reach out to our dedicated team, and we can happily discuss the various options with you, including traditional liquidation and business rescue. No two cases are the same, and to determine the best approach, it’s important that we analyse your unique situation.
