The South African economy has been under significant strain prior to the onset of the COVID-19 pandemic. However, once the COVID-19 pandemic hit South Africa and a hard lockdown was implemented, many businesses were no longer able to see a return. Once a business is in financial difficulty South African Law has implemented a safeguard known as business rescue which attempts to either save the business or best satisfy the creditors of the business. This article aims to outline the requirements of business rescue so that business owners may take the relevant steps which are most appropriate to their circumstances.
The Companies Act 71 of 2008 makes provision for business rescue procedures. Business rescue is a process enacted by the legislature to assist businesses which are in a financially precarious position. This process allows for a plan to be implemented in order to find a long-term solution to the problems faced by the business. This is done by restructuring the affairs, debts, liabilities, etc of the business to make the business financially sustainable once again. The business rescue process aims to either restructure the business so it may continue to exist, or set up a plan which would achieve the best results for the company’s creditors and/or shareholders. The business rescue process is run by a business rescue practitioner who is an expert in their field.
A company is regarded as financially distressed if it appears that it will be unable to pay its debts, or if it appears that it is likely to become insolvent within six months. This process may be initiated either voluntarily or by Court Order. The voluntary process may be initiated by a Resolution of the Board of Directors of the company. Alternatively, an Application may be made to the High Court to place the company under supervision, this would then place the company under business rescue proceedings.
Business rescue proceedings have many advantages for the company, one of the most notable is that a Moratorium (legal suspension) is placed on legal proceedings against the company. This allows the company some breathing room to attempt to remedy issues facing it. However, it is not a blanket protection against all legal proceedings. Some exceptions to this Moratorium include criminal proceedings against the company and/or its directors, or where the business rescue practitioner has provided written consent for these proceedings to commence.
Business rescue is a safeguard set in place for businesses within South African law. However, this overview is a brief one and the knowledge and skills of an experienced insolvency practitioner is required. Should your business be in financial difficulty, feel free to contact us and we will gladly assist you.