Business Rescue Services
Immediate Business Rescue Support: No Cost, No Obligation
We take appointments as Business Rescue Practitioners and assist other Business Rescue Practitioners on a Consultation basis.
Business rescue proceedings are proceedings aimed to facilitate the rehabilitation of a company that is financially distressed by providing for 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; and the development and implementation, if approved, of a business rescue plan to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity (section 128(1)(b)).
Business rescue aims to restructure the affairs of a company in such a way that it maximises the likelihood of the company continuing in existence on a solvent basis or it results in a better return for the creditors of the company than would ordinarily result from the liquidation of the company (section 128(1)(b)(iii)).
Business rescue is a procedure aimed to facilitate the rehabilitation of a financially distressed company. The company is placed under the temporary supervision of a business rescue practitioner who manages the affairs of the company. There is a moratorium on the rights of all claimants against the company or in respect of all its property. A business rescue plan is developed to rescue the company by restructuring its affairs. This may include a restructure of the business, its property, debt, other affairs, liabilities and equity.
What is the purpose of business rescue?
Business rescue aims to restructure the affairs in such a way that it allows the company to continue its existence in the future or if it results in a better return to creditors of the company than would ordinarily result from the liquidation of the company.
Is business rescue a better alternative than a liquidation?
If the prospects of saving the company are good then yes. The process is aimed at returning the company to profitability and is an effort to save jobs and allowing the entity to continue trading as an economically contributing entity.
What is an affected person?
An affected person is a person that has various rights throughout the business rescue process. These are directors, shareholders, employees or their representatives and trade unions representing the employees of the company.
Who benefits from business rescue?
All affected parties benefit from this process. Creditors of the company will receive a better return than they would ordinarily receive from the liquidation of the company. The company will continue its existence once the business rescue process is complete, saving jobs and allowing the entity to continue trading as an economically contributing entity.
Can any company be placed under business rescue?
No. Only if the company is financially distressed and there is a reasonable prospect that the business may be rescued can it file for business rescue.
Can any business entity be placed under business rescue?
No, not all businesses can apply for rescue. Only companies may file for business rescue. Businesses operating through trusts and sole proprietors cannot file for business rescue.
Can a close corporation be placed under business rescue?
Yes, under the new Companies Act a close corporation is classified as a company.
What is meant by financial distress?
A company is in financial distress when doubt exists over whether or not a company is able to pay all its debts as and when they become due and payable within the ensuing six months, or it appears that it is unlikely that the company will become solvent within six months.
When should a company file for business rescue?
A company should commence business rescue proceedings at the first signs of being financially distressed. This implies that at the first signs of distress a company should apply for business rescue. Should a company become “more distressed” options other than business rescue become an option such as takeovers or a liquidation.
Who may place a business in business rescue?
Any affected person may apply to the courts to place a company into business rescue or the directors may file for voluntary business rescue provided in each case the company is financially distressed and there is a reasonable prospect that the business may be rescued.
How a company is legally classified in terms of its size?
A company may be classified as a small, medium or large company based on its public interest score. This also defines the category of business rescue practitioner that qualifies to conduct the business rescue.
What is a public interest score?
A public interest score is a calculation to determine the size of a company at the end of each financial year. Companies with a public interest score of less than 100 are classified as small companies. Companies with a score of between 100 and 500 are classified as medium companies whilst large companies have a score in excess of 500. State owned or public companies with a public interest score of less than 500 are classified as medium sized companies.
How is the public interest score calculated?
A public interest score is calculated at the end of the financial year of a company as follows;
- One point equal to the average employees employed during the year;
- One point for every R 1 million or part thereof of third party liability;
- One point for every R 1 million of turnover or part thereof;
- One point for each shareholder;
The total of all the points is then the calculated public interest score.
Legal action against the company during business rescue.
No legal proceedings including an enforcement action, against the company or its assets may commence or proceed unless;
- The practitioner has consented to this in writing;
- The court has given leave to this;
- The claim is in terms of a set off made by the company in legal proceedings whether it is before or after the business rescue date;
- The action is a criminal proceeding against the company, its directors or officers;
- The claim is against any property or right over which the company acts as a trustee;
- The proceedings are by a regulatory authority in the execution of its duties and it has notified the practitioner in writing;
The effect of business rescue on shareholders.
During business rescue proceedings any change in the classification or status of issued securities of a company other than by way of ordinary course of business is invalid except if the court or the business rescue plan directs otherwise.
Securities are shares, debentures, or other instruments irrespective of their form of title, issued or authorised to be issued by a profit company.
The effect of business rescue on employees.
During business rescue proceedings employees will continued to be employed under the same terms and conditions that applied prior to business rescue, except when;
- Changes occur in the ordinary course of attrition;
- Employees agree to different terms and conditions in accordance with labour laws;
- Any retrenchments contemplated are done in compliance with labour laws;
A business rescue practitioner may not suspend an employment contract for the duration of the business rescue proceedings.
Schemes for the benefit of employees, past and present, is an unsecured creditor to the extent that the amounts due are immediately before the beginning of business rescue proceedings, and in the case of a defined benefit fund, the present value of an unfunded liability at the commencement of business rescue proceedings.
The effect of business rescue on directors.
The directors of the company remain directors of the company but their powers and duties are constricted in that the business rescue practitioner has full management control of the company in substitution for its board and pre-existing management. During this period all directors are still bound by director’s fiduciary duties and duties regarding personal financial interests and can incur personal liabilities as determined by the Act.
The effect of business rescue on contracts.
Existing contracts remain in force under business rescue proceedings, but the business rescue practitioner may entirely, partially or conditionally suspend an agreement for the duration of the business rescue proceedings. The practitioner may also apply to court to entirely, partially or conditionally cancel any terms that are just and reasonable in the circumstances. Any party to an agreement that has been suspended or cancelled has a claim against the company for damages only.
What is the effect of business rescue if I am using assets of the company?
If any property of the company under business rescue is in the possession of a third party as a result of a contract entered into before business rescue they may retain it.
What is the effect of business rescue if the company under rescue is using my assets in terms of a contract?
Any person that wants to exercise any right over property or an asset in the possession of the company can only do so with the written consent of the business rescue practitioner and the practitioner must not unreasonably withhold the requests of that person.
The effect of suretyships and guarantees under business rescue.
During business rescue proceedings a guarantee or suretyship by a company or person may not be enforced against the company in business rescue, except for with the leave of the court.
A business rescue plan.
A business rescue plan once implemented may provide that a creditor has agreed to the discharge of the whole or a portion of the debt owing and the creditor will then lose the right to enforce the relevant debt or part thereof against the company.
Furthermore a creditor is not entitled to enforce any debt owed by the company immediately before business rescue unless it is provided for in the plan.
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