Business rescue proceedings are regulated by Chapter 6 of the Companies Act 71 of 2008. The Act provides for proceedings aimed at rehabilitating financially distressed companies, through the process of reorganising and restructuring the affairs of the company so that it may continue to exist on a solvent basis.
Companies that are financially distressed may qualify for business rescue in terms of the Act. The Act defines ‘financially distressed’ to mean that a particular company at any particular time would be reasonably unlikely to pay all of its debts as they become due and payable in the immediate ensuing six months, alternatively it is reasonably likely that the company will become insolvent within the next ensuing six months. In the case of Welman v Marcelle Prope 193 CC JDR 0408 (GST), the court noted “Business Rescue proceedings are not for terminally ill Close Corporations. Nor are they for chronically ill corporations. They are for ailing corporations, which given time will be rescued and become insolvent.”
Resolution by the Board of Directors
The Board may pass a resolution to place a company under business rescue if the company is financially distressed and there is a reasonable prospect that the company can be rescued.
• Order of Court
Any affected person, example a shareholder or a creditor may make a formal application to Court to place a company under business rescue. The application may be brought on the grounds that the company is financially distressed; failed to pay any amount in terms of an obligation under public regulation, or contract or an employment-related matter, or it would otherwise be just and equitable to do so.
• Business Practitioner
If business rescue proceedings are initiated by a resolution, a business rescue practitioner must be appointed by the Board of Directors of a company within five (5) days, a Notice of Appointment must be filed with the Commission within two (2) business days and thereafter notice must be given to all affected persons within five (5) days.
If business rescue proceedings are ordered by a court, the latter may appoint an interim practitioner nominated by the applicant provided that such appointment is subject to being ratified by the majority of independent creditors at the first meeting of creditors.
A practitioner must investigate the affairs of a company in order to establish whether there is a reasonable prospect that the company can be rescued. If there is no reasonable prospect of rescue, the practitioner must advise the court of the latter and may apply for liquidation of the company. If the company is not financially distressed, business rescue proceedings may be terminated by a court order or a notice of termination may be filed with the Commission.
A practitioner may be removed by a court if he/she is incompetent or fails to perform their duties, or engages in illegal conduct, or alternatively fails to exercise a proper degree of care. A practitioner may also be removed if a conflict of interest arises.
• Business Rescue Plan
Business rescue plan must be published by the company within twenty five (25) days after the appointment of the practitioner. The plan must contain all the information required to assist affected persons decided whether to reject or accept the plan. It should contain the following content: background; proposals; assumptions and conditions; certificate of the practitioner.
A meeting with creditors and any other persons holding a voting interest must be convened 10 days after the publication of the plan, by giving all interested parties notice five (5) days prior to the meeting. If the plan is adopted, it is binding and the practitioner must oversee the implementation of the plan by the company. If the plan is rejected, the practitioner or creditors may propose a revised plan which must be published within ten (10) days. An application can be made to court by the practitioner or affected parties to set aside the opposing votes within five (5) business days.
The Act provides that business rescue proceedings should last for three months, with the court having the discretion to extend the period on application.
Written by: Rishona Van Der Merwe (Candidate Attorney)