Business rescue, can it work?
Business Rescue is a relatively new concept, having only been law since 1 May 2011 and is govern by the Companies Act 71 of 2018. But does it work?
Given the right set of circumstances, it does work.
Business rescue provides a “breather” for financially distressed companies. It functions as a temporary moratorium on the rights of creditors against the company, and the suspension of contractual obligations of the company. This allows the appointed business rescue practitioner to either restructure the affairs of the company (assets, liabilities and equity) that maximises the likelihood of the company being able to trade back to solvency, or to realise the assets of the company to secure a better return to its creditors and shareholders, than in the case of a liquidation.
Sadly, in many instances, the company is too far gone to benefit from the “breather”, leaving the appointed business rescue practitioner having to either wind down the company in business rescue (to give a better return to creditors than in the case of liquidation of the company), or terminate the business rescue proceedings and file for liquidation.
As a result, the timing of the decision to place a company in business rescue is critical to the success of saving the business and so too is the appointment of a competent and credible business rescue practitioner. All too often, the timing is also directly linked to the likelihood of the availability of funding, which is often necessary to carry the company through the rescue period up and until the implementation of the business rescue plan.
Business rescue should not be entered into blindly. A structured analysis of the business of the company should be undertaken in consultation with an expert in the field of business rescue before commencing with any business rescue proceedings. For any proposed business rescue plan to be adopted, it must enjoy a favourable vote of more than 75% of creditors’ voting interests and more than 50% of the independent creditors (those creditors who are not related to the company). Therefore, consultations with the major creditors who carry the vote may be beneficial before the decision is made to commence with business rescue.
Once a business rescue plan is adopted, it is binding on the company, its creditors and holders of the company’s securities, irrespective of whether that person/ creditor was present and voted against the business rescue plan. It is then up to the business rescue practitioner to follow through and implement the plan.
Once the business rescue practitioner believes that the business rescue plan has been substantially implemented, proceedings will come to an end and he will file the requisite notice with the Companies and Intellectual Property Commission.