Business Rescue Proceedings

The restructuring of companies in financial distress has increased drastically in South Africa and across the globe, as many countries are experiencing significant levels of inflation, interest rate hikes, fuel price hikes and unemployment. In recent years, major companies have also approached our courts to enter business rescue proceedings, companies such as Edcon, South African Airways, Mango airlines, Comair, SA Express, Ster-Kinekor and Optimum Coal Mine to name a few. 

The business rescue process which came into force in 2011, is designed to facilitate the rescue of a company that is close to insolvency. The primary objective with the business rescue proceedings is to save the company as a going concern. If this is not achieved, the second option to consider is to try and restructure the company in a manner that shareholders and creditors get a return on their investment. During this process, the company is supervised by a business rescue practitioner, who manages the company’s affairs, business and property during the restructuring of the company in the rescue process. 

In terms of section 128 (1) (b) of the Companies Act 71 of 2008 (“The Act”), business rescue is defined as “proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for – 

  • the temporary supervision of the company, and of the management of its affairs, business and property;
  • a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and 
  • the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in  existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in  a better return  for the company’s creditors or shareholders than  would result from  the immediate liquidation  of the company.”

Section 128 (1) (f) of the Act provides that, a financially distressed company is a company that appears to be reasonably unlikely to be able to pay all its debts as they become due and payable within the immediately ensuing six months or a company that appears to be reasonably likely to become insolvent within the immediately ensuing six months.