Business rescue provides some breathing space for the company to re-arrange its debt and financial structure and potentially enables it to start trading on a profitable basis. In terms of section 133(1) of the Companies Act, commencement of business rescue proceedings automatically results in a stay of enforcement proceedings. The Act provides that during business rescue proceedings, no legal proceeding, including enforcement action, may be commenced or continued in any form against the company. This extends to any property belonging to the company, or lawfully in its possession.

It is the responsibility of the Directors or Shareholders of the company to initiate proceedings at the beginning of financial distress. A failure to do this timely often results in a situation where business rescue intervention will not be successful.

The Act is very clear on this, S129 (1)(a)(b):

“ … begin business rescue proceedings and place the company under supervision, if the board has reasonable grounds to believe that –

• the company is financially distressed; and
• there appears to be a reasonable prospect of rescuing the company “

At this point its very important to take note of point (b) … there must be a reasonable prospect that the business could be rescued. BR is not a quick fix to avoid suppliers and creditors. The BRP must, in the first meeting with creditors, give his opinion that there is a reasonable prospect to rescue the company. The BR plan proposed to relevant parties must contain detail as to the plans to rescue the company and the BRP must implement this to final completion.

What does it mean to be financially distressed?

S128 (f) financially distressed, in reference to a particular company at any particular time, means that:

• it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing 6 months; or
• it appears to be reasonably likely that the company will become insolvent within the immediately ensuing 6 months

The business rescue practitioner must adhere to the qualifications as stipulated on S138 of the Act and is appointed by CIPC, S129(3)(b) appointment must be within 5 days of filing for business rescue.

S140 (1) The practitioner;

• has full management control of the company in substitution for its board and pre-existing management;
• may delegate any power or function of the practitioner to a person who was part of the board or pre-existing management of the company;
• may remove from office any person who forms part of the pre-existing management of the company; or
• appoint a person as part of the management of a company, whether to fill a vacancy or not, subject to subsection (2) and
• is responsible to develop a business rescue plan to be considered by affected persons, in accordance with Part D of this Chapter; and
• Implement any business rescue plan that has been adopted in accordance with Part D of this Chapter

It is your duty as director to take appropriate action to keep the company solvent and look after the best interest of the affected parties i.e. creditors, shareholders and employees. Failing to take proper action could ultimately lead to liquidation of the company. Comparing liquidation to business rescue the following is worth noting:

• Should the company be placed under liquidation and the liquidation is completed to its final conclusion, it would take at least 18 – 24 months in a liquidation for creditors to receive a dividend, if any.
• Proposals in a business rescue plan in general provide for a better return for affected persons than what would transpire in a liquidation.
• The renumeration of a business rescue practitioner is substantially lower than the renumeration a liquidator would be entitled to if the company were to be liquidated.
• Cost associated with liquidation (auctioneer’s commission, advertising costs, storage costs etc) is much higher than cost of business rescue.
• The business rescue plan in general attempts to retain employment.
• The preferred outcome of the business rescue process is the continuation of business whereas liquidation is the complete opposite.