The COVID-19 pandemic put great economic pressure on businesses across the world, and restructuring of companies in financial distress is on the increase globally. The term that is used for this is business rescue and in many cases, it is a far better option than liquidation.
The best time for a company to commence business rescue proceedings is at the first signs of financial distress, where it is reasonably unlikely that the company will be able to pay its debts when they fall due for payment or in the immediate ensuing six months. Or when it is likely that the company will become insolvent in the next six months.
The difference between business rescue and 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.
How does business rescue work?
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
How a company is placed under business rescue
There are two ways a company can be placed under business rescue. Either the board of directors of the company decides that the company should voluntarily proceed with business rescue proceedings and be placed under the supervision of a business rescue practitioner. Or, when an affected person makes a formal application to a court for an order to place the company under business rescue supervision.
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.
Is business rescue right for your business?
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.