Insolvency, Business Rescue, & Restructuring

Speed is of the essence in the business rescue process. Very short time periods are set out in the new Companies Act, No. 71 of 2008 (the Act), which introduced business rescue to the South African business landscape, and it is important that all stakeholders have access to competent insolvency, business rescue & restructuring lawyers who can be called upon at short notice.

Restructuring of companies in financial distress is on the increase globally. South African companies which are financially distressed or which trade in insolvent circumstances now have an opportunity to reorganise and restructure. This has far-reaching effects on creditors; financial institutions; shareholders; employees and restructuring specialists. The purpose of business rescue in South Africa is to maximise the likelihood of the company continuing to exist on a solvent basis. Key to business rescue will be the successful development and implementation, if approved by creditors, of a rescue plan to rescue the company by restructuring its affairs, business, property, debt, other liabilities and equity. Should this not be possible, the implementation of a plan should result in a better return for the company’s creditors or shareholders, than would result from an immediate liquidation of the company.

Werksmans Business Rescue

The members of the Werksmans Business Rescue and Insolvency team have carefully considered the new legislation and the manner in which business rescue proceedings are to be implemented. This includes advising on the manner in which companies should file for business rescue proceedings; the appointment of business rescue practitioners to supervise business rescue proceedings; as well as the duties and liabilities of all parties involved in the business rescue process.

The Purpose of Business Rescue

The purpose of business rescue is to maximise the likelihood of the company continuing in existence on a solvent basis. The key to business rescue will be the successful development and implementation, if approved by creditors, of a business rescue plan to rescue the company by restructuring its affairs, business, property, debt, other liabilities and equity. In the event that this is not possible, the implementation of a business rescue plan should result in a better return for the company’s creditors or
shareholders than would result from an immediate liquidation of the company.

Basics of Business Rescue

Restructuring of companies in financial distress is on the increase globally. In line with this trend, Chapter 6 of the new Companies Act, No. 71 of 2008 (the Act) introduces business rescue to the South African business landscape.

The Werksmans guide to Business Rescue attempts to assist directors and creditors and sets out a broad overview of business rescue proceedings and the sections of the Act which will affect companies in financial distress. We further provide a flow chart of business rescue proceedings with the time periods required by the legislation in the implementation of the process. We provide a business rescue and insolvency checklist which highlights the importance of when to apply for either business rescue or alternatively liquidation. The impact this decision will have on director’s personal liability is also addressed and in particular, the consequences of directors
trading a company recklessly, in a position of financial distress or in insolvent circumstances.

When Should a Company Commence Business Rescue?

A company should commence business rescue proceedings at the first signs of it being financially distressed, within the meaning of the Act. That is, either when it is reasonably unlikely that a company will be able to pay its
debts when they fall due for payment in the immediately ensuing six months or when it is likely that the company will become insolvent in the immediately ensuing six months.

In a recent decision of the South Gauteng High Court, in the case of Welman v Marcelle Props 193 CC JDR 0408 (GST), the court stated that “business rescue proceedings are not for terminally ill close corporations. Nor are they for chronically ill. They are for ailing corporations, which given time will be rescued and become solvent”. This statement supports the contention that at the first signs of financial distress, a company should apply for business rescue. Once a company is more than “financially distressed”, options other than business rescue become more attractive
for ailing companies, such as liquidations or compromises.

Read more on The Basics of Business Rescue here

Download our Business Rescue pocket guide

Download our Business Rescue toolkit

Deep familiarity with legislation – and with excellent client service

With deep familiarity with the Act, our team is able to advise on the most appropriate manner in which proceedings should be implemented. This includes advising on the appointment of business rescue practitioners to supervise proceedings; as well as the duties and liabilities of all parties involved in the process.

Our insolvency, business rescue & restructuring lawyers competently advise directors, stakeholders, employees and creditors during all stages of the process, including providing guidance to creditors in respect of strategic decisions.

Download A review of the King IV Report on Corporate Governance

Download the Werksmans Director Duties and Liabilities Guide.

Download Nastascha Harduth’s article on The Legal Impact of Social Networks – International Trends reproduced with permission from INSOL World

Download Dr. Eric Levenstein’s Special Report on Financing the Rescue Process – A Comparative Analysis of the Financing Regimes in Australia, Canada, South Africa, United Kingdom and United States of America. This report has been reproduced with permission of INSOL International, published October 2018.

Download Dr. Eric Levenstein’s latest Corporate Report on Business rescue in South Africa: shortcomings, suggestions and possible amendments to Chapter 6 of the 2008 Companies Act

Download Dr. Eric Levenstein’s article on An appraisal of the new South African Business Rescue procedure.