What is business rescue and the purpose of it all?
Business rescue is a procedure to facilitate the rehabilitation of a financially distressed company. A business rescue practitioner is appointed to manage the affairs of the company and a rescue plan is developed to rescue the company. This includes a restructuring of debts, liabilities, and equities.
The primary objective with business rescue provisions is to save the company as a going concern. If this is not possible, then the secondary object or goal is to restructure the company in such a way that shareholders and creditors will still get a return on their investments, which is better than the return that they would have received should the company be liquidated.
When should a business file for business rescue?
A business should start the proceedings at the first signs of being financially distressed. Should a business become even more distressed, options other than business rescue become an option i.e. liquidation.
What is financially distressed?
When a company experiences financial distress it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due 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)
Business rescue proceedings can either be voluntary, decided by shareholders and directors, or in terms of a court order. This would then be considered a compulsory business rescue.
Business rescue proceedings will terminate when:
- the court sets aside the order of resolution that commenced the proceedings the practitioner filed with the Commission
- a notice of termination a business rescue plan was proposed, but rejected, and no affected person tried to extend the proceedings.
Business rescue proceedings are not necessarily suitable for all companies. The type of company is for the most part determinative as to whether or not a company is a suitable candidate for business rescue. For instance, companies that are involved in retail are more suitable for business rescue than companies that have been set up for property investment purposes, as retail companies have a “business” that can be rescued, while property investment companies may not. Consideration should be given to the nature of the company, the extent to which business rescue is the appropriate procedure for that company, and the extent to which business rescue would be more beneficial for the company than liquidation. If the answer to the latter questions is in the affirmative, business rescue proceedings are likely to be successful. If not, liquidation may be the preferred alternative.
By Cavel Koert – SAIPA
Key Relationship Manager
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