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The encouraging news is that your small business venture doesn’t have to end in bankruptcy.
The Companies Act 71 of 2008 makes provision for business rescue, proceedings that can facilitate the rehabilitation of companies in financial distress.
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.
The Act introduces principles relating to corporate rescue that brings South Africa in line with international principles of turnarounds and corporate rescue as they exist in foreign jurisdictions.
What is business rescue?
Business rescue can be defined as proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for:
- temporary supervision of the company
- a temporary moratorium on the rights of creditors and
- a plan to rescue the company and help it to stay solvent and in business.
How does it work?
There are two ways of initiating business rescue proceedings:
1. Proceedings may be initiated voluntarily by the company’s board.
This will happen if the board has reason to believe that the company is financially distressed and there appears to be a reasonable prospect of rescuing the company.
Such a resolution may not be adopted if liquidation proceedings have already been initiated by or against the company and takes effect only when it is filed with the Companies and Intellectual Property Commission.
After adoption of the resolution, the company must publish a notice of the resolution in the prescribed manner to every affected person (shareholders, creditors and all employees, whether represented by a registered trade union or not), appoint a business rescue practitioner and notify the commission and those affected of the appointment.
2. Court order to begin business rescue proceedings.
In the absence of a resolution by the board of directors, an affected person may apply to a court for an order placing the company under supervision and commencing business rescue proceedings.
A copy of an application brought by an affected party must be served on the company and the commission, and each affected person must be notified.
A business rescue plan
Once the board’s resolution has been filed with the Registrar, or the Court grants the order commencing business rescue, a business rescue practitioner must be appointed to supervise the company and its management on a temporary basis and to draw up a business rescue plan.
Time-frame of business rescue
The Companies Act requires that the proceedings should be completed within a three month period.
If the proceedings extend beyond three months, the company is required to submit a monthly progress report to each affected party, the court and the business rescue practitioner.