Section 129(1) of the Companies Act 71 of 2008 sets out that voluntary Business Rescue proceedings can be instituted when it is apparent that: the company is reasonably unlikely to stay solvent or pay its debts within the coming six months: that the company is capable of being rescued, should they engage in Business Rescue proceedings: and provided that the liquidation process has not been initiated by or against the company yet.
Business Rescue by an Order of Court can be started by an affected party applying to court to place the company under supervision, as contained in Section 131(1) of the Companies Act. Business Rescue by an Order of Court can still be initiated regardless of pending liquidation proceedings against the company in question. Once an application to place the company in Business Rescue has been lodged with the Registrar of the Court, the liquidation process shall be suspended until the Business Rescue proceedings have been concluded or until the Court refuses the business rescue application.
Once the Business Rescue proceedings have been granted by the Court, a Business Rescue Practitioner (“BRP”), who is an independent third-party, is appointed, and manages and supervises the financial affairs of the company to rehabilitate the business. The BRP formulates a plan to bring relief and restructure the company’s affairs to place the company in a financial position to be able to cover their costs, to pay their debtors and to become profitable again. As contained in Section 150(5) Companies Act, the plan must be published within twenty-five business days of the BRP being appointed. The plan must be presented at a meeting of the creditors within ten business days after being published, and the BRP must inform the creditors whether they believe that there is or is not a reasonable prospect that the business can be rescued successfully. The creditors must vote on the Business Rescue plan and if it is accepted, the BRP will file a notice for substantial implementation, which means that the plan will be adopted and that the Business Rescue Proceedings have come to an end. If the creditors reject the plan, the BRP must revise the plan and provide the creditors with another opportunity to vote. If the plan is rejected again, the BRP may apply to court to set aside the outcome of the vote.
There is a Moratorium period for the duration of these proceedings, which means that no legal action may be instituted against a business in Business Rescue and that all current
legal proceedings against the business are suspended until the proceedings are concluded. Only in a few circumstances will legal proceedings be allowed to proceed or be initiated during Business Rescue Proceedings, (eg. with the leave of the Court or with the written consent of the practitioner, to name a few). The Moratorium period of Business Rescue interrupts the running of prescription which means that the three-year timeframe within which a litigant must institute a claim against the business in Business Rescue, will pause until the Business Rescue proceedings come to an end.
Creditors can submit their claims to the BRP at the first meeting of the creditors with standard documents to substantiate their claim such as certificates of balance, invoices and statements. The BRP then accepts or rejects such claims and will make payment to creditors in the following sequence:
· The BRP and all fees relating to the administration of the Business Rescue proceedings;
· Fees in relation to employment that became due during Business Rescue proceedings;
· Secured creditors who provided financial services and assistance to the company during Business Rescue proceedings;
· Unsecured creditors who provided financial services and assistance to the company during Business Rescue proceedings;
· Secured creditors who provided financial services and assistance prior to the commencement of Business Rescue proceedings;
· Claims of employees due prior to the commencement of Business Rescue proceedings;
· Unsecured creditors who provided financial services and assistance prior to the commencement of Business Rescue Proceedings.
Business Rescue is prescribed by Section 132(3) of the Companies Act to last a maximum of three months to ensure that the process is handled as swiftly and efficiently as possible. The BRP can however apply to the Court for an extension of the period by submitting monthly progress reports to the Court and to all relevant stakeholders. Business Rescue proceedings can come to an end when the Court sets aside the resolution or the Court Order that initiated the proceedings, when the BRP files for the termination of Business Rescue Proceedings (when the Business Rescue Plan is substantially implemented) or when the Business Rescue plan has been rejected and not extended by affected persons.
If a court is convinced that Business Rescue will be less beneficial than liquidation, it will reject the Business Rescue application, whereafter the company will be required to proceed with liquidation. However, the emphasis which Business Rescue places on
recovery and rehabilitation in contrast with the loss and finality that Liquidation brings, makes it more widely supported and encouraged by the Courts.
Mariaan Engelbrecht (Candidate Attorney)
Mark Christodoulou (Associate Director)
Litigation and Dispute Resolution Department
