Since the inception of the South African Lockdown as a result of Covid-19, many businesses were placed under financial distress and required to be “rescued”. Although the phrase “Business Rescue” is quite well known by now, it is so that not all parties are informed as to what exactly business rescue entails and how it works. The purposes of this article will be to explain the meaning of the business rescue, its purpose and process.
Business rescue provides a company with breathing space to restructure its affairs under the management of a business rescue practitioner and for a business rescue plan to be prepared to take the business forward. When a company is placed under business rescue, it should not be seen as the failure of the company, but rather as an opportunity to restructure and shape the company’s affairs.
“Business Rescue” is defined in section 128(1)(b) of the Companies Act 71 of 2008 (Companies Act) as “proceedings to facilitate the rehabilitation of a company that is financially distressed”. In terms of section 128(1)(b)(iii) of the Companies Act, business rescue has one of the following two objectives:
In order to achieve these objectives, Chapter 6 of the Companies Act provides the following tools:
There exists to ways for a company to be placed under business rescue, namely:
Voluntary business rescue proceedings will occur when a company’s board of directors passes a resolution to place the company under business rescue proceedings. This process is regulated by Section 129 of the Companies Act in terms of which the directors resolve to place the company under business rescue if:
In terms of Section 128(1)(f) of the Companies Act, a company will be financially distressed if:
Compulsory business rescue proceedings on the other hand occurs when an application is made to court by an affected person to place the company under business rescue. This process is regulated by Section 131 of the Companies Act. Section 131 states that that unless a company has adopted a resolution
contemplated in section 129 of the Companies Act, an affected person may apply to a court at any time for an order placing a company under supervision and commencing business rescue proceedings.
An “affected person” is defined in section 128(1)(a) of the Companies Act as:
In order to succeed with an application to place a company under compulsory business rescue, the “affected person” must satisfy the court that there is a reasonable prospect of rescuing the company and that:
The business rescue proceedings will commence as soon as the business rescue order is granted by the court.