What is business rescue?

Under the new Companies Act, Act 71 of 2008, businesses (companies or close corporations) can be placed in business rescue, where it seems that the business rescue and the outcome of the process will yield a better result for creditors, instead of a liquidation. It is a well known fact that one of the benefits of a business rescue is that it provides breathing room for the company in financial distress through the temporary moratorium on the rights on the rights of claimants (creditors) against the company. 

Summary of pertinent aspects of business rescue:

In terms of Section 133 of the Act:- During business rescue, no legal proceedings, including enforcement action against the company or in relation to any property belonging to the company or lawfully in possession of the company may be commenced or proceeded with in any forum. This is subject to the following exceptions;

• with the written consent of the practitioner
• with leave of the court
• by way of set off of any claim made by a company under business rescue in any legal proceedings
• criminal proceedings against the company or of its directors or officers
• proceedings of a "regulatory authority" (as defined)

In terms of Section 133(3) prescription is suspended during the company's business rescue proceedings (i.e. from commencement to termination).

Business rescue affords the BRP (business rescue practiotioner) certain powers when it comes to contracts in general, which means that any party that has contractual relations with the company may have its rights affected by the exercise of such powers.

Protection of property interests (Section 134):- During business rescue a company may not dispose of or agree to dispose of property, except;

• in the ordinary course of business (e.g. the sale of its stock)
• a bona fide transaction at arm's length for fair value approved in advance and in writing by the practitioner; or
• in a transaction contmeplated within and undertaken as part of the implementation of the business rescue plan as approved in terms of Section 152

Property in a creditor's possession because of an agreement made in the ordinary course of the company's business. Such creditor "may continue to exercise any right in respect of that property as contemplated in the agreement, subject to Section 136.

If, during business rescue a company wants to dispose of property over which another person has aby security it must first obtain the prior consent of that person unless the proceeds of the disposal is sufficient to discharge the indebtedness protected by the security and promptly pay that person the sale of the proceeds or give that person security for the amount of such proceeds to the satisfaction of that person.

Section 136(2)(a) of the Act allows business rescue practitioners to suspend, during business rescue proceedings, "any obligation" of the company that "arises under an agreement to which the company was a party at the commencement of the business rescue proceedings" and "would otherwise become due during those proceedings".

Section 136(2)(b) of the Act, permits BRP's to urgently apply to a court to "cancel, on any terms that are just and reasonable in the curcimstances, any obligation of the company" as contemplated in the Act.

When do business recue proceedings start, and who qualifies as an "affected person"?

 Business rescue proceedings start when:

• Court ordered BR proceedings begin when a court order is granted placing the company under business rescue. Section 131 of the Act are applicable in applications by court to place the company/close corporation in business rescue.
• When a company has started business rescue proceedings by filing, in the format required, resulotions and affidavits in terms of Section 129(1) of the Act with the CIPC.

Business rescue proceedings end when a court places the company/CC in liquidation, when the BRP/s file a certificate with the CIPC stating that the company/CC is no longer distressed, when the BRP/s file a certificate with the CIPC stating that there is no longer any prospect of business rescue (does not need to bring a liquidation application), or when a business rescue plan has been rejected by creditors or shareholders.

What is an affected person?

Affected persons are persons/entities who simply, are people who may be affected by the business rescue. These inlcude;  a director, shareholder or creditor of the company/CC, a member of a close corporation, any trade union representing employees of the company, or, if the employees of the company are not represented by a registered trade union, each of those employees or their representatives. The term "creditor" does not only refer to a creditor with a monetary debt or a debt due at commencement of the BR proceedings but includes a creditor with a non-monetary claim or a claim that will fall due during the BR proceedings, which is an affected person and entitled to intervene.

How we can assist you should you contemplate business rescue of your company/close corporation.

We will evaluate your company/close corporation's situation, and advise whether it is a candidate for business rescue, or perhaps other interventions, and which options would likely give you the best possible outcome. All information and discussions are confidential.