Business rescue is a legal process whereby a company in financial distress can file a notice with the CIPC to commence with the proceedings to restructure its operations and creditor payments.
The board of directors, affected people such as the creditors, shareholders, employees, and unions can apply for business rescue of a firm. If they choose to do so, an application is made to court. If awarded, a business rescue practitioner is appointed to take over the management of the firm with the purpose of setting the plan in motion and overseeing its implementation.
The practitioner must develop and prepare the plan, which is implemented upon approval of the creditors and the shareholders. The directors of the company or members of the close corporation have the responsibility to pass a resolution for the rescuing, winding up, or liquidation of the entity if they become aware of the financial distress of the company or close corporation.
Failure to pass the resolution or to take steps in liquidating the firm if its liabilities exceed its assets and when it is unable to pay creditors when due can lead to the directors being held responsible for the company’s debts.
The directors must still fulfil their duties in the company during the proceedings, but they may do so under the supervision of the practitioner. They must provide the practitioner with the required assistance to ensure the company can operate. The directors can delegate some or all functions and powers to the practitioner, who then takes full control of the firm. The practitioner, therefore, controls the company instead of its board of directors.
The aim of the process is to restructure the operations and management of the company to bring it back to a solvent state, instead of having to liquidate it. New payment schemes can be structured to ensure that the firm can pay creditors. With such in place, job losses can be reduced. Moreover, creditors can receive the money owed, instead of having to settle for the minimum benefit associated with liquidation of the entity.
Once the plan is in place, all liquidation and other legal proceedings for debt are stayed. However, an entity already in the process of being liquidated cannot apply for business rescue.
Get in touch with our legal team for business rescue assistance if your firm is in financial trouble or you are a creditor of a debtor company in distress.
*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.