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02The new Companies Act (“the Act”) became effective on 1 May 2011. One of its focus areas was to enhance protection to ailing businesses – to give them the opportunity to get back on their feet. This had become an internationally accepted practice and the old 1973 Companies Act did not adequately address this.

Owners and managers of businesses need to be aware of the duties imposed on them by the Act and should also know of the potential that the business rescue process offers. Few small and medium sized businesses (SMEs) have taken advantage of business rescue provisions.

Business Rescue. A quick overview:

  • A business which is already or is becoming financially stressed is obliged to seek business rescue or needs to explain to its stakeholders why it is not opting for business rescue.  Alternatively, an affected person (creditor, employee, shareholder or trade union) may approach a court to put a business into business rescue.
  • “Financially stressed” means that within the next six months, liabilities of the business will exceed its assets and/or it will not be able to pay its creditors.
  • A notice is filed with the Companies and Intellectual Property Commission (CIPC) advising the business is opting for business rescue and requesting a business rescue practitioner (“BRP”) be appointed.
  • If you have a BRP in mind, you may appoint that person, provided they are accredited with the CIPC. This is a critical decision as once appointed, the BRP takes effective control of the business.
  • The BRP has 25 business days to consult with all relevant stakeholders and then present a business rescue plan to the stakeholders. The BRP needs to be convinced there is a reasonable chance of successfully turning the business around or obtaining a better deal for affected persons who include creditors, employees and their union representatives and, if their rights are affected, shareholders. If 75% of the stakeholders approve the plan (including at least 50% of independent creditors), the BRP may then execute the plan.
  • Business rescue takes approximately six months and in this time, the rights of creditors are restricted as the BRP may suspend in part or whole their agreement with the business. In this period, creditors may only sue a business with the permission of the court. Employees still enjoy the protections of our labour law – for example, any retrenchments will need to be done in accordance with labour legislation.
  • In addition, the BRP effectively runs the business.
  • Once the BRP has completed the rescue plan then business rescue proceedings end. Alternatively, the business may be purchased or go into liquidation.
  • Business rescue is designed to be a cost-effective (as it is largely self-regulated) and a speedy way of saving a business.
  • Owners, directors and managers – your obligations

Decision makers in a business face potential criminal or personal liability if they fail to follow the provisions of the Act’s Business Rescue section.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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