Business Rescue for companies and CC’s

business-financial-problemsWhat is Business Rescue?

Business Rescue is a set of proceedings provided by Chapter 6 of the Companies Act 2008 to facilitate the rehabilitation of  companies or CC’s that is financially distressed by providing for—

  • the temporary supervision of the company, and of the management of its affairs, business and property; and
  • a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and
  • the development and implementation, if approved, of a plan to rescue the company;
  • or if it is not possible for the company to so continue in existence, a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company (s 128(1)(b)).

Chapter 6 of the Companies Act has also been made applicable to the Business Rescue of close corporations by item 6 of Schedule 3 to the Companies Act (s66(1A) of the Close Corporations Act, 1984 as amended 2011). This means that both Business Rescue proceedings and the compromise with creditors may be used for a close corporation that is experiencing financial difficulties.

In South Africa, judicial management was in use since 1926 but is an expensive and cumbersome process. Business Rescue has been utilised elsewhere in the past few decades under other names – in USA (Chapter 11), UK (Administration), Australia (Voluntary Administration) and in many other industrial nations. The compromise procedure in terms of s311 of the (previous) Companies Act of 1973 was often used to achieve a Business Rescue . This has now been replaced by the compromise with creditors in terms of s155. Of course, informal arrangements (i.e. outside any statutory framework or procedure) with major creditors have always been in place and will continue to do so.

A business rescue plan (hereinafter called “plan”) is a plan of action developed and presented for approval by the affected persons (creditors, shareholders, employees, trade union, etc.) and/or the Court to be implemented by the Practitioner, which details the manner in which the company will be rescued. The plan is the focus point of the Business Rescue process. Once implemented, the business rescue practitioner (hereinafter called the “practitioner”)will officially announce implementation to the Court or the CIPC (Companies and Intellectual Property Commission) and hand control of the company back to the Board of directors.


The purposes of the Companies Act are to provide the efficient rescue and recovery of financially distressed companies and CC’s, in a manner that balances the rights and interests of all relevant stakeholders (s7(k)). The intention is to save as many jobs as possible and save a part of the economy for all concerned.

Who are involved?Business rescue experts

Affected Persons
An affected person is a stakeholder such as a creditor, shareholder, employee or trade union).

The Board of Directors
The directors of the company remain the directors during business rescue. However, their powers and duties are constricted in that the practitioner has full management control over the company – including over  the board of the company and its management.

Employees who were employed by the company immediately prior to the institution of BR, will remain employed by the companies and CC’s on the same terms and conditions on which they were employed 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 law and legislation (s136).

Business Rescue Practitioner
A business rescue practitioner is an independent person appointed, or two or more persons appointed jointly, who are well qualified and experienced as senior/experienced or junior to oversee respectively a large, medium or small company during BR. In all cases the practitioner would have to be eligible to be appointed as a director of such a company.

When and how?

Business Rescue becomes compulsory when the company is deemed to be financially distressed, that is, when it is reasonably likely that it will be unable to pay its debts in the immediately ensuing six months -including if it is likely to become insolvent in the immediately ensuing six months (s128(1)(f)). In fact, s129(7) states that if the board of a company has reasonable grounds to believe that the company is financially distressed, but it has not adopted a resolution to commence Business Rescue, it must deliver a written notice to each affected person, setting out its reasons why (imagine the consequences hereof!).

There are extremely tight deadlines for all Business Rescue procedures to ensure a speedy outcome. Failure to comply with any of these could easily result in the Business Rescue proceedings being declared null and void. If a company fails to comply on time with any of the provisions of s129(3) (publishing a notice of the resolution and appointing a Business Rescue Practitioner) and/or s129(4) (filing a notice of the appointment of a practitioner and publishing a copy of the notice of appointment), the Business Rescue resolution lapses and is a nullity and the company may not file a further resolution for a period of three months after the date on which the resolution was adopted, unless a court, on good cause shown, approves of the company filing a further resolution (s129(5)(b)). Again, the consequences hereof are dire.

Once a company commences Business Rescue proceedings, the following actions are prescribed by the Act-.Liquidation

  • the practitioner must investigate the affairs of the company as soon as possible after the commencement of BR (s141);
  • within 5 business days after the commencement of Business Rescue proceedings, or such longer period as the practitioner may allow, the directors must provide the Practitioner with a statement of affairs containing certain information as prescribed by the Act (s142);
  • within 10 business days after being appointed, the practitioner must convene a meeting of the creditors and a meeting of the employees and advise the meeting, among other things, of the prospects of rescuing the company (s147 and s148);
  • the Business Rescue Plan must be published by the company within 25 days after the date on which the Practitioner was appointed unless extended by approval of the Court or the creditors (s150); and
  • the Practitioner must convene a meeting of the creditors and any other shareholders with a voting interest, within 10 business days after publishing a Business Rescue Plan for the purpose of considering and/or approving the proposed Business Rescue Plan.

If the practitioner does not obtain an approved Business Rescue Plan, any affected person may make a binding offer to purchase the voting interests of persons who opposed adoption of the plan, at an expertly determined liquidation value to that person.

S132(3) provides that Business Rescue proceedings should last for a maximum period of 3 months. During the 3 months, the Practitioner must do his job by convening meetings for affected persons, consulting on the Business Rescue Plan and thereafter implementing the plan if it is approved by the creditors or the Court, as applicable. If Business Rescue proceedings take longer than this, or such longer time as the Court may allow (the practitioner is well advised to ask for such extension up front), the practitioner must prepare a progress report, update it at the end of each subsequent month until the end of those proceedings and deliver a report and update to each affected person and to the Court (if the proceedings have been the subject of a court order) or the CIPC, in any other case. These tight reporting requirements provide Practitioners with a definite incentive for conducting the process and implementing the Business Rescue Plan, in the shortest possible time.

  • it is otherwise just an equitable to do so for financial reasons, and there is a reasonable prospect of rescuing the company.
  • the company has failed to pay over any amount in terms of a public regulation, or contract, with respect to employment related matters; or
  • the company is financially distressed;
  • when an affected person makes a formal application to court for an order placing the company under supervision and commencing BR proceedings (s 131), provided the company has not already been placed under Business Rescue in terms of s 129, and –
  • when the board of directors resolves that the company voluntarily commence Business Rescue proceedings and be placed under the supervision of a Practitioner (s 129); or

How does Business Rescue begin and end?

The company can be placed in Business Rescue in two ways, namely –

  1. By order of the Court or
  2. By formal resolution of the company, which is registered with CIPC

Business Rescue proceedings begin as follows:

  • The Practitioner is required, as soon as possible after appointment, to investigate the company’s affairs, business, property (assets) and financial situation, and thereafter consider if there is –
    • any reasonable prospect for the company to be rescued; or
    • any reportable transactions (reckless trading etc.); or
    • no longer reasonable grounds to believe that the company is financially distressed.

Business Rescue proceedings end when –

  • the Court sets aside the resolution or court order that began the Business Rescue proceedings or
  • when the Court converts Business Rescue proceedings into liquidation proceedings;
  • when the Practitioner files a notice (Form CoR125.2) of termination of Business Rescue proceedings with CIPC;
  • when a Plan has been proposed and rejected and no affected person has acted to extend the proceedings
  • when a Plan has been adopted and the Practitioner has subsequently filed a notice of substantial implementation of the plan (Form CoR125.3).

How does Business Rescue work?

The Practitioner has full management and control over the company but he may delegate certain functions to a director or to a person who was part of management. The Practitioner may also remove any person from company management or appoint a person (who does not have any other relationship with the company i.e. is impartial, objective and not related to any such person) to assist with proceedings.
The Practitioner may be appointed by –

  • a company (the board), within 5 business days after the company has adopted and filed the resolution with CIPC (or such longer time as CIPC may allow), (s 129(3));
  • a court, upon request by an affected person, if it sets aside the appointment of a Practitioner, and appoints an alternate practitioner recommended by the voting independent creditors (s 130(6));
  • a court, upon request by an affected person, if it appoints an interim practitioner nominated by the affected person subject to ratification by first meeting of the creditors (s 131(5)); or
  • the company, or affected person who must appoint a new practitioner if a practitioner dies, resigns or is removed from office (s 139(3)).
  • The remuneration of a Practitioner is to be determined at the time of appointment of the practitioner by the company, or the court, and may not exceed prescribed rates for either a small company, a medium company or a large company or state-owned company.(Regulation 128(1)).
  • The Practitioner may also conclude a contingency agreement providing for further remuneration, to be calculated on the basis of a contingency related to the adoption of a Plan at all, or within a particular time, or the inclusion of any particular matter within such a plan; or
  • the attainment of any particular result or combination of results relating to the Business Rescue proceedings.

The Practitioner –

  • is an officer of the Court and obligated to report to the Court in accordance with any applicable orders (s 140(3));
  • has the same responsibilities, duties and liabilities as directors, (s 75, s 76 and s 77);
  • is not liable for any act or omission performed in good faith in the course of the exercise ;
  • during the performance of his functions may be held liable in terms of any law for any act or omission that amounts to gross negligence.
  • during the Business Rescue process may not be appointed as subsequent liquidator of the company if liquidation proceedings follow upon an unsuccessful Business Rescue .

Post-Commencement Finance

During Business Rescue proceedings the company requires cash to finance certain transactions or any business it might continue to conduct. Post-commencement finance is finance provided to the company after Business Rescue proceedings have commenced and has particular priority for payment as part of the settlement of the plan (s 135(2)).

S135(1) also provides that any remuneration, reimbursement for expenses or other amount of money relating to employment that becomes due and payable by a company to an employee during Business Rescue , is also considered to be post-commencement finance.

If Business Rescue proceedings are superseded by a liquidation order, the preferences determined in Business Rescue will remain in force, except to the extent of any claims arising out of the costs of liquidation.

Existing Contracts

The practitioner may —

  • entirely, partially or conditionally suspend, for the duration of the Business Rescue proceedings, any obligation of the company to which the company was a party at the commencement of the Business Rescue proceedings; and
  • which would otherwise become due during those proceedings; or
  • apply urgently to a court to entirely, partially or conditionally cancel, on any terms that are just and reasonable in the circumstances, any such contract of the company.

The reciprocal party to an agreement will probably not perform its obligations if the practitioner has suspended the company’s obligations or cancelled the agreement and the other party will have a claim for damages in terms of s136(3).

During Business Rescue proceedings, no legal or arbitration proceedings or enforcement action against the company or in relation to its property (belonging to it or lawfully in its possession) may be commenced or proceeded with except –

  • with the written consent of the practitioner;
  • with the leave of the Court (in accordance with any terms the Court consider suitable);
  • as a set-off against any claim made by the company in any legal proceedings, irrespective as to whether those proceedings commenced before or after the Business Rescue proceedings began;
  • criminal proceedings against the company or any of its directors or officers; or
  • proceedings concerning any property or right over which the company exercises the powers of a trustee (transactions on exchange and agreements providing for termination and netting); or
  • proceedings by a regulatory authority in execution of its duties after written notification to the Practitioner (s133(1)).

How can the process be fast tracked?

In UK and other countries the concept of “pre-packs” is in place with the result that companies in business rescue are rescued much faster and jobs are saved at a very high rate. In South Africa the concept is not in use, however a good Practitioner will have a Business Rescue Plan template readily available to suit the circumstances. It is important for the Practitioner to liaise with the major creditors as soon as possible to obtain maximum certainty that the required 75% approval rate will be achieved at the meeting of creditors. Time is of the essence.