WHEN BALANCING LAW & BUSINESS BECOMES A CHALLENGE WE PROVIDE YOU WITH OPTIONS
What is Business Rescue?
Business Rescue proceedings were introduced by the Companies Act No. 71 of 2008 and became effective on 1 May 2011. Business Rescue proceedings are aimed at facilitating the rehabilitation of a company which is experiencing some form of financial distress. During these proceedings a Business Rescue Practitioner (the “BRP”) is appointed to manage the affairs of the company, conduct certain investigations and developing and implementing a Business Rescue Plan. The plan is essentially aimed at restructuring the affairs, business, property, debt and other liabilities and equity of the company. The final result should be that the company can continue to exist and trade on a solvent basis. If it is not possible, the BRP may make proposals which could result in a more lucrative return for creditors than what they would receive in a liquidation scenario. During this time the Act provides for a temporary moratorium on the rights of claimants against the company giving the company and the Business Rescue Practitioner breathing space to conduct the Business Rescue proceedings without having to entertain litigation from creditors.
Does my business qualify for business rescue?
Business Rescue proceedings are aimed at corporate entities such as the various forms of companies and close corporations.Business Rescue proceedings are specifically aimed at financially distressed companies. This means that it is reasonably unlikely that the company will be able to pay all of its debts as they become due within the immediately ensuing six months or it appears reasonably likely that the company will become insolvent within the immediately ensuing six months.
In addition to being financially distressed it must also be reasonably likely that the affairs of the company can be restructured in such a manner that it can continue to trade on a solvent basis.
Business Rescue Process
We have identified five phases during the Business Rescue process.
1. Application Phase
This provides for the application of the Business Rescue proceedings. This can either be achieved through a voluntary resolution or a High Court application. The Companies Act sets out specific requirements which need to be complied with in order to bring the application by way of resolution or court application.
2. Appointment Phase
The appoint phase is the phase during which the Business Rescue Practitioner is appointed. In this regard the Companies and Intellectual Property Commission plays a crucial role in certifying BRP’s and providing them with a conditional licence. One needs to assess whether it is necessary for a junior, experienced or senior Practitioner to assist in the Business Rescue proceedings which is dependent on the size of the company. In many instances it is advisable that more than one Practitioner is appointed, depending on the size or complexity of the matter.
3. Investigation Phase
During this phase the BRP and his team will investigate the affairs, business and property of the company and meet with all the relevant stakeholders. Essentially the BRP needs to understand the business, the difficulties the business has been experiencing and to find the most suitable way to restructure the affairs of the company.
During this time the company does not merely cease trading as the BRP will continue with the trading operations insofar that it is necessary and viable to maintain the status quo.
During the investigation phase the BRP will also hold formal statutory meetings with the creditors and employees in order to discuss and plan the restructuring.
4. Planning Phase
The planning phase takes place simultaneously with the investigation phase however at some point the Business Rescue Practitioner will develop a formal written Business Rescue Plan which will be submitted to the creditors for consideration. The Business Rescue Plan is a technical legal document which sets out how the business will be restructured.
The formal plan will then be presented to creditors at a creditors meeting at which meeting they can then consider the contents of the plan and even make proposals as to how it should be amended if necessary. Once the majority of creditors have voted in favour of the plan it will be implemented.
5. Implementation Phase
During the implementation phase the Business Rescue Practitioner will implement the plan subject to the proposed conditions and restructure the affairs of the company as approved by the creditors.
How long does a business rescue process last?
It is generally considered that the Business Rescue process up to the planning phase should not take longer than three months. The implementation of the Business Rescue Plan may however take longer, depending on the size and complexity of the company. The Legislators of the Companies Act provided for a swift and proactive manner in which the rehabilitation of companies can be achieved. It is obviously not ideal that companies are placed under supervision for a long period of time however, this will be dependent on the circumstances of each business.
We aim at providing a swift service in order to revive the company as soon as possible or to ensure that the creditors receive a better dividend than they would had the company been liquidated.
A Business Rescue Plan is binding on the company and all its creditors once it has been adopted, irrespective of whether the creditor was present at the meeting, voted in favour of the adoption of the plan or whether the creditor has proven a claim.
What effect will a Business Rescue have on my business when it is placed under supervision?
Business Rescue will affect most aspects of a business. In this regard there is a moratorium placed on the legal proceedings. There are specific requirements in the manner in which property and existing contracts should be dealt with.
Employment contracts will usually continue as per normal unless it is required to reduce staff in which case one will commence retrenchment procedures. Furthermore, Business Rescue proceedings will also affect the rights and duties of shareholders, directors and creditors.
How can we help you?
We have a dedicated team with the necessary experience and skills to assist you with all aspects of Business Rescue. We can advise you on the effect and consequences of a proposed Business Rescue Plan or we can represent you at a creditors meeting. In the event that your company is in financial distress and requires an expert to restructure the company’s affairs we can propose a custom-made business solution.