Western Cape Business News

Send  Share  RSS  Twitter  25 Jan 2011

BUSINESS: How Business Rescue Can Come Into Play


Recent Western Cape Business News

THE Great Recession that stuck globally had seriously negative effects on industry with over half a million job losses in South Africa and many business closures.

Good news for local businesses, although too late for many organisations, is the new Companies Act, which is set to come into effect April this year, introducing an entirely new concept called ‘Business Rescue’.

Business Rescue is intended to replace immediate liquidations or judicial administration in an attempt to nurse ailing companies back to financial health.

This new concept will allow for the rehabilitation of floundering companies and the protection of employment for the staff.

Who can apply for Business Rescue? Melanie Te Brugge, a company secretarial manager for Moore Stephens Cape Town explains that any “affected persons” can apply for business rescue.

The board of directors of a company, the shareholders, creditors, employees or a trade union active in the company can all place a company under business rescue proceedings through various avenues.”

Directors need merely to pass a resolution to go under business rescue that they then notify the shareholders of in writing. Shareholders, creditors and employees must put an application in through the courts on the grounds listed in section 131(1) of the Companies Act, 2008, if the board has not resolved to commence business rescue proceedings themselves.”

The difference here,” says Te Brugge, “is that if shareholders can determine that there are reasonable grounds to believe that a company may be rescued during liquidation proceedings, a Court may suspend liquidation proceedings and business rescue will ensue.”

Once a company is in business rescue, they are allowed to continue trading but with a moratorium on most legal proceedings against the company. So suretyships or guarantees cannot be enforced against the company, and no person may exercise any rights in respect of property in the possession of the company even if the company does not own the property unless provided for as security. So for example, the financier of motor vehicles cannot unilaterally take possession of the vehicle in the case of default by the company.”

Te Brugge says the Act envisages the intimate and formal involvement of the shareholders and creditors of a company in business rescue proceedings, ranging from the choice of method by which the proceedings are instituted to participation in court proceedings.

Shareholders are advised to acquaint themselves with their entitlements in business rescue proceedings in order to ensure their interests are suitably protected.”

What happens after application? “A business rescue practitioner is appointed to formulate a business rescue plan which is done in consultation with all of the affected parties and the management of the company. The practitioner also takes over the management role of the organisation during this time,” explains Te Brugge.

This rescue plan contains three parts that lay out the background to the situation, proposals to remedy the financial distress and all the assumptions and conditions that must be met. The plan then goes before the affected parties who decide whether to amend it, accept it or reject it. Once accepted, everyone is bound by the business rescue plan.”

Even after all of this it may become apparent that a business is beyond saving and the company will then go into liquidation. But this new and exciting concept of business rescue introduced by the new Companies Act will certainly offer many a sinking company a life raft in tough times,” Te Brugge says.

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