UNDERSTANDING THE BUSINESS RESCUE PROCESS

Business Rescue, as set out in Chapter 6 of the Companies Act 71 of 2008, is a legal mechanism designed to rehabilitate companies facing financial difficulties. The process involves placing the company under temporary supervision and staying claims by creditors, while an independent Business Rescue Practitioner (BRP) develops and implements a business rescue plan. The overarching objective is to either return the company to solvency or, if that is not feasible, ensure a better outcome for stakeholders than an immediate liquidation would offer.

There are two key goals of Business Rescue:

1. To facilitate the continued existence of the company in a financially sustainable form— this may include the transfer of its business or parts thereof to another entity.
2. If rescue is not viable, to provide a superior return to creditors and shareholders compared to liquidation.

It is crucial to note that Business Rescue is not intended for companies with no realistic chance of recovery. In Oakdene Square Properties v Farm Bothasfontein (2013 SCA), the Supreme Court of Appeal confirmed that the process should not be abused to delay the inevitable demise of hopelessly insolvent entities.

Business Rescue will commence in one of two ways:

1. Voluntary Business Rescue (Section 129): The board of directors may pass a resolution placing the company under Business Rescue, provided there are reasonable grounds to believe it is financially distressed. The resolution only takes effect once filed with the Companies and Intellectual Property Commission (CIPC). However, a company cannot initiate voluntary Business Rescue if liquidation proceedings are already underway.
2. Court-Ordered Business Rescue (Section 131): An affected person, such as a shareholder, creditor, or employee, may apply to court to place the company under Business Rescue if it has not already done so voluntarily.

Once business rescue proceedings commence, the BRP may adopt various strategies based on the company’s specific needs. These often include:

• Debt restructuring – renegotiating payment terms with creditors.
• Operational restructuring – cost-cutting, management changes, or refining the business model.
• Asset sales – selling off divisions or assets to settle debts and preserve value for stakeholders.

The Business Rescue process impacts various parties:

• The company receives breathing space to reorganise without creditor pressure.
• Creditors are temporarily barred from enforcing claims, giving the BRP time to devise a rescue plan.
• Employees typically retain their positions and are considered preferred creditors, though still ranked behind secured creditors.

Business Rescue remains a valuable tool for corporate recovery when used responsibly. It is a strategic move in response to financial distress which has the potential to avoid the more drastic consequence of liquidation when successful.