If a company/close corporation is in financial trouble and all possible avenues to save the business have been exhausted, there is one last option available to save the business: it can lodge an application for business rescue at the CIPC. In order to qualify for business rescue proceedings, the business must satisfy the requirements as set out in the next paragraph.
A company/close corporation will only be considered as a business rescue candidate if all three the following requirements are met:
- The decision to start business rescue proceedings must be taken before any liquidation proceedings have been instituted against the business.
- The business is financially distressed.
A business is seen as financially distressed if:
- It seems reasonably unlikely that the business can pay its debts in the normal course of business for the next six months, or
- It seems reasonably likely that the business will be insolvent in the next six months.
- There seems to be a reasonable chance of rescuing the business.
What is the aim of a business rescue plan?
The aim of placing a company/close corporation under business rescue is to give the business some breathing space to implement the business rescue plan and give the business a fair chance to become a going concern again.
Alternatively, if the business is liquidated despite the business rescue proceedings, the aim is to hopefully have a higher return available for the creditors and shareholders than would have been the case if the business was liquidated before undertaking any business rescue proceedings.
To give a business the maximum chance of recovering its finances and to continue operating as a solvent enterprise, the business rescue plan normally restructures a business’ assets, liabilities and equity, as well as its way of doing business.
Who can be appointed as a business rescue practitioner?
There is a list of licensed business rescue practitioners available on the CIPC’s website.
What does a business rescue practitioner do?
The appointed business rescue practitioner will investigate the business’ situation and propose a business rescue plan. After the business rescue plan has been approved by the creditors and shareholders, the business rescue practitioner will implement the plan. The reason why the creditors and shareholders must approve the business rescue plan is that they will withhold their rights against the business to claim payment as long as the business is operating under the business rescue plan.
After implementing the business rescue plan, the business rescue practitioner will temporarily oversee and manage the business together with the current management.
The business rescue practitioner also takes over dealing with the creditors and shareholders. In addition, the business rescue practitioner will communicate with registered trade unions which represent employees of the business. If there are employees who are not members of any registered trade union, the business rescue practitioner will deal with these employees or their representatives as well.
The first step to start with a business rescue is for a business to file a notice with the CIPC that it wants to start with business rescue proceedings. The rest of the business rescue process and the business rescue documents which are required to be submitted to the CIPC, is set out on the CIPC’s website.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.