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Business Rescue Law

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We assist businesses in all areas of Business Rescue Law

Business rescue is a process where directors of under-performing businesses are provided with assistance to allow their businesses to find their feet and develop strategies to re-establish their solvency. Our role in the business rescue arena includes advising directors of their obligations to the stakeholders of under-performing businesses, advising business rescue practitioners in the performance of their duties, and assisting creditors in enforcing their rights within this process. Our team of experts are able to provide technical yet practical advice in all aspects of this area of law.
Business rescue is an essential remedy for businesses, especially in times of economic turbulence. Advising stakeholders of their rights and responsibilities within this area of law involves a multi-facted approach.

- Robyn Hey

Laws and Regulations

Business rescue is governed by chapter 6 of the provisions of the Companies Act, 2008 (‘the Act’) and its regulations. Our courts have interpreted various provisions of the Act pertaining to business rescue which has helped in developing the law around this technical and complex mechanism available to distressed businesses.

What to expect when entering into Business Rescue

The most important thing to note about the implementation of business rescue is that the directors of the company in business rescue cease to have ultimate control of the affairs of the company. A business rescue practitioner will be appointed, who will have the final say on how the business is run during the period that business rescue is in place (subject to a business rescue plan). The process of business rescue involves a period during which the business rescue practitioner comes to grips with the business and makes a determination of whether the distressed business can be saved, i.e. returned to a state of solvency). The business rescue practitioner will accept claims from creditors and liaise with them to draft a business rescue plan which, if approved by creditors, will be implemented. While the company is in business rescue, creditors may not bring any legal action against the company.

Alternatives to Business Rescue

If the company is not yet in a position where it can be defined as distressed, an informal turnaround process can be put in place. However, this does not give rise to a moratorium in respect of creditors’ claims and needs to be carefully implemented to ensure that the directors of the company in question do not fall into the trap of trading recklessly. One of the tools available to the company, if it is not in business rescue, is a statutory compromise between the company and its creditors in which a proposal is put to creditors which details the suggested treatment of the debts of the company in terms of such a proposal. The purpose is essentially to show creditors that by accepting the proposal, they would be better off than if the company were to be placed in business rescue or in liquidation (where it is not already in liquidation). Where a company is simply insolvent and cannot carry on trading or where continuing to trade would be reckless, liquidation is the only option available.

FAQs

Where your debtor is in business rescue, you have the right to submit a claim to the business rescue practitioner setting out the amounts owed to you and how this amount came about. You also have the right to vote for or against a business rescue plan. However, if the business rescue plan is accepted by the majority of the creditors (in the manner prescribed by the Companies Act) you will be bound by the business plan.
Yes, you are entitled to do so. The Companies Act does not protect the directors or shareholders from legal action by the creditors of the company, even during the moratorium period.
Unlike in a liquidation scenario where the liquidators’ costs are taken out of the realisation of assets in terms of a tariff, a business rescue practitioner is entitled to charge an hourly rate. This hourly rate is determined in the Companies Act although business rescue practitioners are entitled to negotiate additional fees with the company which fees must be agreed to by the majority of the creditors and the shareholders.

Whatever the type of contract, an attorney needs to approach it clearly and commercially in order to manage their client’s risk and achieve the best result.  

- Sarah van Zyl, Caveat Panel Member

caveat legal panel attorney sarah van zyl

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