As a creditor of a debtor company that’s unable to pay debt owed to you, your first step should be to consult with a commercial lawyer about how to proceed in collecting money owed. If the debtor firm is a long-standing client of your company and its account forms an integral part of your firm’s income, you may want to save the firm instead of initiating judgement, collection proceedings, or an application for its liquidation.
Business rescue proceedings are relatively new in South Africa, but they have been practised in the USA for quite some time. If a firm has many employees, it is certainly better to seek business rescue assistance with the help of a commercial lawyer than liquidating it and causing job losses.
As a creditor of the debtor firm, the liquidation application will cost your firm a considerable amount. There is also the risk that the sale of assets may not be enough to recoup the money owed. Where possible and if the debtor account is large, thus affecting your firm’s cash flow, seek legal guidance from a commercial lawyer on how to proceed with the application for business rescue.
Keep in mind that the court must approve the application. This can only be approved if the firm can be rescued through the restructuring of creditor payments, re-organising the management structure, and streamlining its operations. If it is possible to bring the company back to a solvent state, then the court will award the application. Once awarded, a business practitioner is appointed to oversee the design, development, and implementation of the plan. A commercial lawyer from our firm can, for instance, be appointed as a business practitioner to oversee the restructuring of a company.
The business practitioner reviews the financial status of the company and the potential of bringing it back to a profitable state. If at any stage it becomes apparent that it is not possible, the practitioner notifies the relevant parties. The company can then be liquidated.
The directors must provide their cooperation and fulfil their duties while the firm is under business rescue. They report to the practitioner. Where needed, they can transfer functions and powers to the practitioner, who then acts as a substitute for the board of directors.
The board of directors must ensure that a business practitioner is appointed within five days of filing a resolution for business rescue. The practitioner files a report three months after having taken control of the firm. This report is submitted to CIPC. If you, as a creditor, applied to court for the business rescue of a debtor firm, then the practitioner must file the reports with the court.
The practitioner will restructure the debt payments of the firm, ensuring that the company can pay debts owed to you and other creditors. Note that all legal proceedings against the firm for debt collection or liquidation are stayed for the period. If it becomes apparent that the firm cannot be rescued, you can take the steps to have it liquidated. To this end, we recommend also making use of our experienced team of commercial lawyers to help with the process.
*This article is for information purposes only and does not constitute legal advice. Call on our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant as at the date of publishing – September 2019.