Countless businesses have fallen victim to the harsh economic climate in South Africa over the past few years and many companies have consequently been left out in the cold.
In the past, struggling companies have enlisted the ‘emergency services’ of liquidation. However, this process only arrives to call the time of death of a company instead of assisting in the resuscitation process. In the uncertain times of a company caught in substantial financial debt, unmanageable expenses and employees to support a possible hero has come to the rescue.
When the tornado of financial depletion hits, companies need a better lifeline in order to prevent their eventual downfall.
Business rescue initiatives landed on the scene with its shiny new cape known as the Companies Act 71 of 2008 (‘the Act’) and the promise to save companies of their untimely demise.
Instead of just bringing operations to an end, such rescue efforts provide financial and operational management and supervision to companies in distress by appointing a business rescue professional to guide and advise the company out of the ‘danger zone’.
Its superpower is determining which companies have the potential of being rehabilitated. A company is in financial distress when it is reasonably unlikely that the company will be able to pay its debts as they become due and payable, and will become insolvent in the ensuing six months.
A company can voluntarily commence business rescue proceedings though filing the Form CoR123.1 notice with the Companies and Intellectual Property Commission which must be accompanied by a resolution of the board of directors of the company.
Alternatively, an affected person can make a formal application to a high court. An affected person is defined as a shareholder, creditor, or a registered trade union representing employees of the company.
Unlike liquidation proceedings, the business rescue does not prevent company operation and rather assists the company to rehabilitate its financial position through the implementation of a business rescue plan which is voted on by the company’s creditors during various meetings.
In a decision of the South Gauteng High Court, in the case of Welman v Marcelle Props 193 CC JDR 0408 (GST), the court stated that business rescue proceedings are not for terminally ill close corporations. Nor are they for chronically ill.
They are for ailing corporations, which given time will be rescued and become solvent.
If everything does not go according to the ‘business rescue plan’, liquidation can still swoop in and save the day for creditors as liquidation proceedings can still be instituted after business rescue proceedings have been terminated.
In situations where a creditor has not received payment from a debtor company a letter of demand in terms of section 345 of the Act is issued, and if no adequate response is received application can be made to place the company under compulsory liquidation.
Business rescue plans can protect the companies who are caught in the eye of the economic storm, but don’t write off liquidation just yet.
Whether such a rescue should carry super hero status remains to be seen as these proceedings are still fairly new in terms of South African legislation and economic implementation.
For any advice or assistance in relation to business rescue or liquidation proceedings feel free to contact Malherbe Rigg and Rawell Attorneys on 011 918 4116.
Written by Elmariese Vermeulen, candidate attorney from MRR.
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