We’re Fluence Capital, leaders in the business of turnaround.

 In the past, companies in financial distress in South Africa had no alternative but to launch proceedings for liquidation. But the introduction of business rescue in 2008 provided a significant opportunity for the efficient rescue and recovery of financially distressed companies. 

As South African businesses attempt to navigate the uncertainties associated with the post Covid-19 landscape, we have seen a string of prominent businesses undergoing business rescue in recent months. In fact, between April and October last year, there were 233 filings for business rescue. As businesses attempt to recoup their Covid-led losses within the next few months, we anticipate a marked increase in the number of business rescue filings. 

As business rescue practitioners, we receive a host of questions on a daily basis about how the process works, the duration, the role of the business rescue practitioners, as well as the impact of the process on shareholders and directors. We have therefore decided to answer some of the most common questions surrounding the business rescue process below. 

1. What is business rescue? 

Business rescue, as defined by the Companies Act 2008, aims to facilitate the rehabilitation of a company that is “financially distressed” by providing for: the temporary supervision of the company and management of its affairs, business and property by a business rescue practitioner, a temporary moratorium (“stay”) on the rights of claimants against the company or in respect of property in its possession and the development and implementation (if approved) of a business rescue plan to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity.

2. When is  a company financially distressed?

A company is financially distressed when it appears that the company is reasonably unlikely to be able to pay its debts, or when it appears that the company will be reasonably likely to become insolvent within the ensuing six months. 

3. When was business rescue introduced in South Africa?

The new Companies Act 2008 commenced in May 2011 wherein Chapter 6, Business Rescue, was introduced to provide a new process of restructuring companies in financial distress, to replace Judicial Management.

4. What is the duration of business rescue?

In terms of the Companies Act, the business rescue of a company should last for a period of three months. But in most cases this is not achievable due to a variety of administrative and procedural issues. If business rescue proceedings are not concluded within 3 months, or within the time extension granted by court, the business rescue practitioner must file monthly report updates with the CIPC and the affected persons until the proceedings are concluded.

5. What is a business rescue plan?

A business rescue plan is the plan developed and enacted during the business rescue of a company. It details how a business rescue practitioner plans to rescue a financially distressed company after consulting the creditors and other affected persons of a company. The plan also provides the repayment proposal to all the affected persons/parties. 

6. How is business rescue initiated?

There are two ways in which a company can be placed in business rescue, namely by way of a board resolution (voluntary business rescue) and by way of an application to court (compulsory business rescue). 

Business rescue can be initiated by:

  • The board of directors files at the CIPC voluntarily and not through the High Court. The board of directors or the members would have to adopt a resolution to voluntarily commence business rescue proceedings or alternatively resolve to wind up or liquidate as soon as he or she becomes knowingly aware that the company is either: Financially distressed or Is unable to pay its debts
  • Various affected persons by application to the High Court (including shareholders, creditors, registered trade unions and employees).

7. What is the objective of business rescue? 

The main objectives of business rescue are to return the business back to solvency, in other words turn it around, save jobs and provide a better return for affected parties than that of immediate liquidation.

8. What is the role  of the business rescue practitioner? 

A business rescue practitioner’s role is as supervisor of the company/corporation during the proceedings, subject to the duties and responsibilities of a director of a company, having extensive powers over the pre- existing management. 

9. Who are the ‘affected persons’ in terms of business rescue?

Affected persons are the shareholders, creditors and employees of a company in business rescue, as well as registered trade unions representing the employees of a company.

10. What is the effect of business rescue on the directors of a company?

During business rescue proceedings, the board of directors continues to exercise their functions subject to the authority of the practitioner. The directors are always expected to attend to the business rescue practitioner’s requests and provide all requests for information. Any action taken by a director that requires the business rescue practitioner’s approval will be void if such approval was not obtained.

11. What is the effect of business rescue on the shareholders of a company?

Shareholders in a company under business rescue have a direct and substantial interest in the manner in which the business rescue practitioners intend to rescue the company and, more particularly, the manner in which they intend to part with any of the assets of the company.

Section 146 of the Act provides that, during a company’s business rescue proceedings, each holder of any issued security of the company is entitled to:

  • Notice of each court proceeding, decision, meeting or other relevant event concerning the business rescue proceedings;
  • Participate in any court proceedings arising during the business rescue proceedings;
  • Formally participate in a company’s business rescue proceedings to the extent provided for in Chapter 6 of the Act.
  • The business rescue plan will contain any changes in the classification or status of any issued securities of a company. The plan is adopted if the shareholders vote to accept these amendments. 

12. When do business rescue proceedings end?

Business rescue proceedings end when:

  • The court sets aside the resolution or order that began the business rescue proceedings or when the court converts business rescue of a company into liquidation proceedings; or
  • The business rescue practitioner files a notice of termination of business rescue of a company with Companies and Intellectual Property Commission (CIPC); or
  • A business rescue plan has been proposed and rejected and no affected person has acted to extend the business rescue of a company; or
  • A business rescue plan has been adopted and all the terms and conditions of the plan have been fulfilled. The business rescue practitioner subsequently files a notice of substantial implementation of the plan.

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