The new business rescue provisions of the Companies Act (the Act) usher in a largely self administered mechanism for failing companies. Although self-administered, it is not without oversight by the courts on application by stakeholders.

In this regard the new business rescue regime is more participative than the judicial administration process of the old companies legislation and considers the rights of all the stakeholders, from shareholders all the way through to employees and creditors of the company.

What is business rescue?

Business rescue embraces the concept of assisting a financially distressed company by means of providing a process that will help facilitate the rehabilitation of the failing company.

The rational being, that assisting a company to become financially viable is almost always a far better option for all stakeholders than the liquidation of a potentially solvent entity.

How does the process work?

The company or the court, on application of an affected person, can commence business rescue proceedings.

If the company wishes to commence proceedings, the company can start the process with the filing of a special resolution to commence voluntary business rescue proceedings.

What is important to note is that this process cannot be started if liquidation proceedings have already been initiated by or against the company.

Within 5 days after the filing and adoption of this resolution the company must publish a notice to all affected parties and appoint a business rescue practitioner. Both this notice and the appointment of the practitioner must satisfy certain formal requirements as set out in the Act.

The business rescue practitioner will then, on consultation with all the affected persons, draw up a business rescue plan which will need to be adopted by the company at a special meeting for this purpose.

Objections to the process started voluntarily by the company?

Any affected person can, on application to the courts, apply for an order:

  1. Objecting to the adoption of the resolution on the basis that the company is not financially distressed;
  2. Objecting to the business rescue practitioner; or
  3. Requiring the business rescue practitioner to lodge security on the terms and conditions and in the amount the court feels is sufficient to protect the interests of all affected persons.

The application must occur prior to the adoption of the business rescue plan.

It is important to note that the new business rescue provisions include several provisions protecting employees and company contracts whilst additionally taking into consideration the impact on shareholders.

And all employees and creditors have the same rights of participation in all relevant events during the process.

The intention of the new provisions is to have a participative and inclusive process to enable all affected parties, including the company, to arrive at a satisfactory plan for the financial stabilisation and rescue of the company in order to prevent an avoidable liquidation situation arising.