Chapter 6 of the Companies Act 2008 (Act 71 of 2008) provides for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders. 

All businesses that are financially distressed and want to take a decision to start rescue proceedings can file a notice to start business rescue proceedings with the CIPC.

Business rescue can be initiated by:

• The board of directors;
• By an application to court when the business is financially distressed;
• Various affected persons by application to court (including shareholders, creditors, registered trade unions and employees).

The decision by a board to pass a resolution for business rescue needs to be done urgently to enable the business rescue practitioner to take control for the purposes of having a business rescue plan approved and thereafter implemented.

A business rescue practitioner will be appointed to oversee and supervise on a temporary basis the management, affairs and business of the company and to devise, prepare, develop and implement a business rescue plan.  The plan will be implemented if approved by creditors and shareholders to the extent that the rights of the shareholders will be affected.

A director or a member would have a duty to pass consider passing a resolution for a company’s business rescue or alternatively resolve to wind up or liquidate as soon as he or she becomes knowingly aware that the company is either:

• financially distressed or
• is unable to pay its debts

During the company’s business rescue proceedings, each director of the company:

• would continue to exercise the functions of a director subject to the authority of the practitioner duly appointed
• must assist the practitioner that is expected to operate the company and to continue to run its business
• may delegate any power or function to the practitioner duly appointed that would have full management control of the company in substitution for its board and pre-existing management.

Important:  No liquidation proceedings must have commenced against the company when a decision is taken to start business rescue proceedings.

Need more information about business rescue, contact us at info@fastreg.co.za and let us help.