The importance of Business Rescue options in the wake of disaster
On 15 March 2020 a national state of disaster has been declared in terms of the Disaster Management Act 57 of 2002. Numerous regulations followed which were promulgated in March and April of this year. These regulations provide for significant restrictions on movement and activity effecive from 27 March 2020 (the lockdown).
The regulations in essence affected all business owners who does not provide essential services. Not being able to trade for more than a month might prove to be the final nail in the coffin for businesses, already under financial strain prior to the pandemic. Minister Nkosazana Dlamini Zuma has gazetted further amendments to the regulations on the COVID-19 lockdown in order to flatten the infection curve.
The majority of businesses will find itself in financial distress after the lockdown is lifted. If your business can however overcome the financial distress, given time and careful management the business rescue may be the best option to save your company.
The business rescue process can provide the company with the opportunity needed to reorganise and restructure its affairs, and to structure a payment scheme with its creditors, whilst also saving jobs and allowing the business to continue trading as an economically contributing entity.
Business Rescue also offers a ‘moratorium’ on legal proceedings or liquidation procedures against any company that is in business rescue. This has far reaching effects on creditors, financial institutions, shareholders, employees and restructuring specialists.
What is business rescue?
Business rescue aims to facilitate the rehabilitation of a company that is “financially distressed” by providing for the temporary supervision of the company and management of its affairs, business and property by a business rescue practitioner, a temporary moratorium on the rights of claimants against the company or in respect of property in its possession and the development and implementation of a business rescue plan to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity.
“Financially distressed” in this contents means that it appears reasonably unlikely that the company will be able to pay all of its debts as they become due and payable for the upcoming six months or it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months.
Process to place a company in business rescue.
There are two option available: The first is when the board of directors resolves that the company voluntarily commences business rescue proceedings or, secondly, when an affected person makes a formal application to the High Court for an order placing the company under supervision and commencing business rescue proceedings.
An affected person is either a shareholder, creditor, employee or a registered trade union representing employees of the company.
What is a business rescue practitioner?
The Companies Act 71 of 2008 stipulates who may be appointed as a business rescue practitioner as well their duties and responsibilities. A business practitioner must be a member in good standing and accredited and licenced. The practitioner is required to reduce the debt burden of the company in order to enable the company to continue trading. They are required to investigate the company’s affairs, business, property and financial situation, and thereafter consider whether there is any reasonable prospect of rescuing the company.
The business rescue plan
A business rescue plan must be drawn up by the practitioner and will then be put to a vote by the creditors. Once successfully voted in, the business rescue practitioner must implement and oversee the business rescue plan in an attempt to save the company.
The business rescue plan will be executed by the practitioner. The duties and powers of the business rescue practitioner is wide and consists of considerable powers, essentially equating to full management and control over the company.
The practitioner may delegate certain functions to a director or to a person who was part of the pre-existing management of the company.
Employees who were, immediately prior to the institution of business rescue, employed by the company will remain with the company according to the same terms and conditions except to the extent that changes occur in the ordinary course of attrition or if different terms and conditions are agreed between the employee and the company in accordance with labour laws.
Under the supervision of the business rescue practitioner creditors need to comply with their obligations to supply goods or services to the company in the same manner in which they did prior to the commencement of business rescue proceedings, unless the agreement between the company and the creditor regulates the relationship between the parties in the event of an insolvency or business rescue.
Business rescue provides companies with an option to right the financial wrongs and prejudice it suffered during the lockdown period.
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