JWF Van Jaarsveldt

What is the Purpose of The Business Rescue Procedure?

Business Rescue aims to do exactly what the name says, to rescue or rehabilitate a company which is under financial distress.

There are two methods of commencing business rescue proceedings. Either a company resolution to begin business rescue proceedings in terms of Sec 129 of the Act or a court order placing the company in business rescue in term of Sec 131 of the Act. Business rescue proceedings usually last for a period of three months.

A "Business Rescue Plan” must be drawn up by a provisionally licensed business rescue practitioner that possesses the necessary industry knowledge, who has the capacity to take on the specific business rescue and where there are no conflicts of interest with the business.

This "Business Rescue Plan” will then be put to a vote by the creditors and once successfully voted in, the business rescue practitioner must implement and oversee the business rescue plan in an attempt to save the company.

The Board of Directors can initiate the Business Rescue with a resolution.

If the board of directors of a company has reasonable grounds to believe that the company is financially distressed, they must either;

• Put the company under business rescue, and

• Complete the prescribed forms, prepare an affidavit setting out the circumstances causing the distress and a solution how to solve such and appoint a Business Rescue Practitioner.;

Who May apply to Court for a Business Rescue Order?

(Section 128 & 131)

• Directors

• Shareholders

• Employees

• Trade Unions on behalf of their members

On what grounds will the Court grant the Rescue order?

• The company is in fact financially distressed

• There reasonable prospects of saving the company

• Procedural requirements were not complied with

• If the court deems it “Just and Equitable” that the order be granted.

The effect on Legal Proceedings during the Business Rescue Process?

During the Rescue Proceedings, there is as general moratorium on legal proceedings against the company. Because this moratorium might prejudice the company’s legal opponents, the prescribed time periods allowed in the Process Law is also suspended with the same period that the matter was postponed by the moratorium.

Legal proceedings may continue or commence in the following instances:

• If written consent is given by the BRP;

• When the court has so ordered;

• As a set-off in legal proceedings by the company

• Proceedings about any property or right which the company holds as trustee

• Criminal proceedings against the company, its directors or officers are unaffected

• A guarantee or surety by the company is unenforced without leave from the court

Importance of a Proper Plan

The practitioner, after consulting the creditors, other affected persons, and the

management of the company, must prepare a business rescue plan for consideration and possible adoption at a meeting held.

(2) The business rescue plan must contain all the information reasonably required to

facilitate affected persons in deciding whether or not to accept or reject the plan.