When a company is financially in distress, the Directors Shareholders has a duty under the New Companies Act 71 of 2008 to certain action. This may include the bringing of a business rescue application, liquidation proceedings or informing creditors of the financial situation of the company. At Le Roux & Du Plessis Attorneys we will guide you trough the process of either business rescue, liquidation or negotiating extended payment periods.
Should you in your personal capacity experience financial trouble, we can also assist you with the pressure you are experiencing from your creditors. This may include sequestration, debt review or negotiating alternative payments towards your creditors.
Le Roux & Du Plessis Attorneys also attends to business rescue proceedings on behalf of companies. Our directors and paralegals regulary attends seminars and discussions regarding business rescue proceedings and they also hold past degree qualifications to maximise the advice you will receive from Le Roux & Du Plessis Attorneys.
1. What is business rescue?
Business Rescue intents to do exactly what the name says, and that is to rescue or rehabilitate a company which is under financial stress. Business rescue proceedings are therefore proceedings, instituted by a company or affected third parties, intending to rehabilitate a company that is experiencing financial distress. A business rescue practitioner will then temporary supervise the company, the management, business and property of the company. The aim of the Business Rescue process is therefore to restructure the affairs of the company in such a way that the company can continue to trade.
2. What is the effect on Legal Proceedings during the Business Rescue Process?
During the Rescue Proceedings, there is as general moratorium on legal proceedings against the company. This means that third parties may not institute any legal proceedings againbst the company during the duration of the business rescue process. There are a few exceptions, namely:
Legal proceedings may continue or commence in the following instances:
- If written consent is given by the BRP;
- When the court has so ordered;
- As a set-off in legal proceedings by the company
- Proceedings about any property or right which the company holds as trustee
- Criminal proceedings against the company, its directors or officers are unaffected
- A guarantee or surety by the company is unenforced without leave from the court
3. What is a business rescue practitioner?
A business rescue practitioner is a person appointed by CIPC to administrate the company during business rescue proceeding. Normally the business rescue practitioner will be an person who has experience in the business world, being an attorney, auditor, liquidation practitioner etc.
4. What is an affected person?
An affected person is a director, shareholder, creditor, employee (or their representative) or a registered trade union representing employees of the company. Affected persons have several rights throughout the business rescue process (section 128(1)(a)).
5. When should a company apply for business rescue?
The Act defines the words “financially distressed” (section 128(1)(f)) as:
“if it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months (commercial insolvency); or it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months (factual insolvency).”
A company should therefore commence business rescue proceedings at the first signs of financial distressed. That is, either when it is reasonably unlikely that a company will be able to pay its debts when they fall due for payment or when it is likely that the company will become insolvent in the immediately ensuing six months.
6. How is a company placed in business rescue?
There are two main ways in which a company can be placed in business rescue, namely –
when the board of directors of a company resolves that the company voluntarily commence business rescue;
when an affected person makes a formal application to court for an order placing the company under supervision and commencing business rescue proceedings
7. How long do business rescue proceedings last?
Normally business rescue proceedings last for a period of three months.
If business rescue proceedings have not ended within three months after the start of the proceedings, or such longer time as the court, on application by the practitioner, may allow, the practitioner must –
prepare a report on the progress of the business rescue proceedings, and update it at the end of each subsequent month until the end of those proceedings;
deliver a report and each update in the prescribed manner to each affected person and to (i) the court (if the proceedings have been the subject of a court order); or (ii) CIPC, in any other case.