Business rescue proceedings are defined by the Companies Act 71 of 2008 as proceedings to facilitate the rehabilitation of a company that is financially distressed, i.e. a company which is unlikely to pay its debt as it becomes due within the immediate ensuing six months, or a company that is likely to become insolvent within that time.
Thus, business rescue proceedings are primarily aimed at “rescuing” a company that is in a dire financial position, in that the company is placed in the hands of a business rescue practitioner to take over the day to day management of the company and take control over its related properties. Furthermore, creditors are prohibited from enforcing claims against the company during the course of business rescue proceedings so that the business rescue practitioner may develop and implement a business rescue plan in terms of which the company may effectively trade itself out of the financial position it finds itself in.
In practise, the board of directors of the company will pass a resolution to apply for business rescue, after which a business rescue practitioner is appointed. Alternatively, a creditor may also apply to the High Court for the company to be placed under business rescue. The business rescue practitioner will then take control of the company for the duration of the business rescue proceedings and will then proceed to investigate the affairs of the company, conduct meetings with creditors and propose a business rescue plan, which, if accepted, will enable the company to continue trading and pay off its debts.
Employees who were employed by the company prior to the institution of business rescue will, in accordance with Section 136 of the Companies Act, remain employed by the company except to the extent that the changes occur in the ordinary course of attrition or if the employees of the company, in accordance with the applicable Labour Laws, agree to different terms and conditions. In any event, any retrenchment of any such employees which may be contemplated in the company’s business rescue plan is subject to the Labour Relations Act.
The main focus of business rescue proceedings is to enable a company to continue trading without fear of creditors enforcing claims for payment of debts and, in certain circumstances, apply for the liquidation of the company. However, and although business rescue proceedings are preferred, it may very well be that a company is not able to trade itself out of trouble and that liquidation proceedings have to be instituted for the benefit of the body of creditors. Interestingly enough, it is possible for a company that has been originally finally liquidated, to obtain relief in the form that the liquidation may be suspended and the company be placed under business rescue.
Fred Visagie is currently a associate in the Tygervalley office of C&A Friedlander Inc.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. NO liability can be accepted for any errors or emissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal advisor for specific and detailed advice.