Business rescue regime in South African law, was established in the Companies Act of 2008 to prevent the liquidation of financially distressed companies and to facilitate their restructuring and revival. Business rescue is not just a legal process, but a lifeline for struggling businesses. The primary goal of business rescue is to maximize the chances of a company's successful recovery while also considering and minimizing any potential harm to stakeholders, who are not just participants, but key contributors to the process.
The Companies Act, specifically Chapter 6, was introduced as a robust response to companies' financial distress challenges. This legislation promises hope, ensuring their survival and increased success. Chapter 6 has been influenced by international trends and comparative law, reflecting a global recognition of the need for flexible and adaptable frameworks to address the challenges of corporate distress and insolvency.
Overall, the goal of business rescue is to provide a mechanism for companies in financial distress to be restructured and revived rather than being liquidated, aiming to maximise stakeholder returns and minimise the negative impacts of liquidation. The success of this approach depends on the practical implementation of a business rescue plan, the skill and expertise of the Business Rescue Practitioners ("Practitioner"), and the company's ability to be successfully restructured.
Under specific conditions, a financially distressed company can be placed under business rescue. This can be initiated by a court order, following an application by a creditor or shareholder known as compulsory business rescue, or by a resolution of the company's directors if they believe the company is financially distressed known as voluntary business rescue. A company is considered financially distresses if it appears to be reasonably unlikely to pay all of its debts as they become due and payable within the immediately ensuing six months or t appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months.
The applicant in the court proceedings or the directors, in addition to seeking that the Company be placed in business rescue, will nominate a qualified Practitioner with the requisite seniority depending on the size of the business and the requisite knowledge. Practitioners with their extensive expertise and skills, play a crucial role in the South African business rescue process. They are tasked with assessing the viability of a distressed company, developing a rescue plan, and overseeing its implementation. The effectiveness of a business rescue depends in large part on the skills and expertise of the Practitioner.
The Business Rescue Practitioner
Practitioners have extensive powers under the Companies Act to manage and control the company during the rescue process. They can take over the company's management, make decisions on its behalf, and delegate any power or function to others as necessary. Key powers include:
- Control of the company: They can manage its operations, assets, and affairs (Business rescue practices in South Africa: An explorative view).
- Reorganisation of the company: They can restructure the company, including changing its business model, selling assets, or entering into new agreements. The goal is to make the company viable again.
- Negotiation with affected persons: They have the power to negotiate with creditors, employees, shareholders, and other stakeholders to reach an acceptable rescue plan for all parties. This power of negotiation ensures that all voices are heard and considered, fostering a sense of inclusivity and fairness in the process.
- Delegation of powers: They can delegate any powers or functions to other qualified individuals or firms to assist with the rescue process.
If the business rescue process concludes with an order placing the company in liquidation, any person who has acted as Practitioner during the business rescue process may not be appointed as liquidator of the company.
The Business Rescue Plan
Once a company commences business rescue proceedings either voluntarily (by way of a resolution in terms of section 129) (where, the preliminary actions have been taken) or by court order (on application by an affected person in terms of section 131), the Act prescribes the following actions:
The Practitioner must as soon as possible after the commencement of business rescue investigate the affairs of the company, business, property, and financial situation and thereafter consider whether there is reasonable prospect of the company being rescued (section 141); within ten business days after being appointed, the Practitioner must convene a meeting of the creditors and a meeting of the employees and advise on the prospects of rescuing the company, receiving proof of claims from creditors, and the creditors and employees representative may determine whether a committee of creditors or employees' committee should be appointed (section 147 and 148); the business rescue plan must be published by the company within twenty-five days after the date on which the Practitioner was appointed (section 150(5)) or such longer time as may be allowed be the court on application by the company or the holders of a majority of the creditors' voting interests; and within ten business days of the publication of the business rescue plan the Practitioner must convene a meeting of the creditors and any other holders of a voting interest, for the purpose of considering the proposed plan (section 151).
If the business rescue proceedings have not ended within three months after the start of those proceedings, or such longer time as the court, on application by the Practitioner may allow, the Practitioner must prepare a report on progress of the business rescue proceedings and update it at the end of each subsequent month until the end of those proceedings and deliver the report and each update to each affected person, and to the court if proceedings have been the subject of a court order or Commission in any other case (section 132(3)).
Termination of Business Rescue Proceedings
Business rescue proceedings end when the court sets aside the resolution or order that began the business rescue proceedings or when the court has converted business rescue proceedings into liquidation proceedings; or the Practitioner has filed a notice to terminate business rescue proceedings with the Commission, or and a business rescue plan has been proposed and rejected and no affected person has acted to extend the proceedings in any manner contemplated by the Act, or a business rescue plan has been adopted in terms of Part D of Chapter 6 of the Companies Act 71 of 2008 and the Practitioner has subsequently filed a notice of substantial implementation of the plan.
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