The economic challenges facing businesses today can feel insurmountable, and many businesses are battling to keep going. For those who feel that liquidation is just around the corner, another option to consider is business rescue. If in the next six months, your business is facing becoming insolvent and you are unlikely to be able to pay its debts as they fall due, you could be a candidate for business rescue.
“Business Rescue” is defined in section 128(1)(b) of the Companies Act 71 of 2008 (Companies Act) as “proceedings to facilitate the rehabilitation of a company that is financially distressed”, where the company is placed under temporary supervision of a rescue practitioner who manages the affairs of the company.
Facing financial distress
A company will be financially distressed in terms of section 128(1)(f) of the Companies Act if:
- It appears to be reasonably unlikely that the company will be able to pay all of its debts as and when they become due and payable within the immediately ensuing 6 months (commercial insolvency); or
- if its liabilities will exceed its assets within the ensuing six months (factual or balance sheet insolvency).
A better alternative to liquidation
Business rescue results in the recovery of a business while liquidation is the end of the business. The aim of business rescue is to restructure the affairs of a company in such a way that either maximises the likelihood of the company continuing in existence on a solvent bases. Or it results in a better return for the creditors of the company than would ordinarily result from the liquidation of the company.
The aim of business rescue proceedings is to facilitate the rehabilitation of a company that is financially distressed by:
- The temporary supervision of the company and the management of its affairs, business and property by a business rescue practitioner
- A temporary moratorium (stay) on the rights of claimants against the company or in respect of property in its possession
- The development and implementation of a business rescue plan to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity
Applying for business rescue
Business rescue can be initiated by:
- The board of directors;
- By an application to court when the business is financially distressed;
- Various affected persons by application to court (including shareholders, creditors, registered trade unions and employees)
How long do business rescue proceedings last?
The business rescue proceedings should last for a period of three months during which the business rescue practitioner must convene meetings for affected people and implement the business rescue plan. The business rescue plan must be published by the company within twenty-five days after the date on which the business practitioner was appointed.
Taking steps towards business rescue
Business rescue proceedings are not necessarily suitable for all companies. To find out more about business rescue proceedings speak to our expert finance team today. We also offer ethical and professional liquidation services to our clients.