10 Frequently Asked Questions About Business Rescue

/ / 2020, COVID-19, News





1    What is Business Rescue?


Business Rescue proceedings are proceedings aimed to facilitate the rehabilitation of a company that is financially distressed, by providing for:


  • the temporary supervision of the company, and the management of its affairs, business and property by a Business Rescue Practitioner;
  • a temporary moratorium (stay) 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 Business Rescue plan to rescue the company by restructuring Its business, property, debt, affairs, other liabilities and equity.


Section 128(1)(b) of the Companies Act 71 of 2008 (the “Act”)]



2    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. In other words, it should do so 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 [section 128(1)(f) of the Act].


If the board of a company has reasonable grounds to believe that the company is financially distressed but does not adopt a resolution for the voluntary initiation of Business Rescue proceedings in terms of section 29(1) of the Act, the board must deliver a written notice to affected persons setting out the criteria referred to in the definition of ‘financially distressed’, and its reasons for not adopting a resolution initiating Business Rescue proceedings. Such good reason could be that the company has “entered the Cobra ecosystem” (http://cobra.org.za) and is attempting to reach suitable compromises (payment holidays and the like) with its creditors.



3    How is a company placed under Business Rescue?


There are two main ways in which a company can be placed in Business Rescue, namely:


  • when the board of directors of a company resolves, by majority vote, that the company voluntarily commences Business Rescue proceedings and be placed under the supervision of a Business Rescue Practitioner [section 129 of the Act] – this option cannot be followed if liquidation proceedings have been instituted by or against the company; or


  • when an ‘Affected Person’ (shareholder, creditor, employee or a registered trade union representing employees of the company) makes a formal application to the High Court for an order placing the company under supervision and commencing Business Rescue proceedings, provided that


    • the company is financially distressed;
    • the company has failed to pay over any amount in terms of an obligation under or in terms of a public regulation, or contract, with respect to employment related matters; or
    • it is otherwise just an equitable to do so for financial reasons, and there is a reasonable prospect of rescuing the company [section 131 of the Act].



4    Can you object to Business Rescue Proceedings?


Yes, an Affected Person may apply to court for an order setting aside the following: 


  • The resolution to commence Business Rescue, on the following grounds:


    • There was no reasonable basis for the belief that the company was financially distressed;
    • Business Rescue holds no reasonable success prospects; or
    • the procedures, such as filing and time periods, were not complied with.


  • The appointment of the Business Rescue Practitioner on the following grounds:


    • The Practitioner does not satisfy eligibility criteria;
    • the Practitioner does not satisfy independence criteria; or
    • the Practitioner does not satisfy skill requirements relative to the company’s circumstances. [section 130 of the Act]


Such an application must be launched during the period between the adoption of the resolution and the Business Rescue Plan being adopted.


The Court can also be requested to order the Business Rescue Practitioner to provide security in the amount and on the terms as the court may deem fit.


An Affected Person who, as a director, voted in favour of a resolution, cannot apply for the relief set out above without proving that his initial support was in good faith.



5    How does Business Rescue proceedings unfold and how long does it last?


Business Rescue commences upon the filing of a resolution in terms of section 129 or upon the granting of a court order in terms of Section 131 of the Act. [see question 3 above]


Section 132 of the Act provides that Business Rescue proceedingsshould last for a period of three months. Once a company commences Business Rescue proceedings, either voluntarily or by an order of court, the following actions are prescribed by the Act: 


  • The Business Rescue Practitioner must investigate the affairs of the company as soon as possible after the commencement of Business Rescue [section 141 of the Act];


    • within ten business days after being appointed, the Business Rescue Practitioner must convene a meeting of the creditors and a meeting of the employees and advise the meeting, among other things, of the prospects of rescuing the company [section 147 and 148 of the Act];


    • the Business Rescue plan must be published by the company within twenty five days after the date on which the Business Rescue Practitioner was appointed [section 150 of the Act]; and


    • the Business Rescue Practitioner must convene a meeting of the creditors and any other holders of a voting interest, for the purpose of considering the proposed plan, within ten business days of the publication of the Business Rescue plan [section 151 of the Act].


If Business Rescue Proceedings have not ended within three months, or as extended by the Court on application by the Business Rescue Practitioner, he must prepare a report at end of each subsequent month and delivered it to each Affected Person as well as the Companies and Intellectual Property Commission (“CIPC”).



6    What is a Business Rescue Plan?


This is the plan developed and enacted during the Business Rescue procedure. It details how the Business Rescue Practitioner plans to rescue the financially distressed company, after consulting the creditors and other Affected Persons.


Section 150 of the Act provides a framework for what the Business Rescue plan should contain. The plan must detail how the Practitioner intends rescuing the company and contain everything that is necessary to convince creditors to approve the plan. The Business Rescue plan must contain, inter alia, the following: 




  • including a list of assets, which assets are secured, list of creditors indicating secured, statutory preferent and concurrent creditors in terms of the laws of insolvency, probable dividend should insolvency ensue, list of all holders of the company’s securities, a copy of the written agreement concerning the Business Rescue Practitioner’s remuneration and a statement whether the Business Rescue plan includes a proposal made informally by a creditor of the company.




  • including the nature and duration of any specific moratorium, extent to which the company is to be released from payment of debts, the extent to which any debt is proposed to be converted to equity in the company or another company, the ongoing role of the company and the treatment of any existing agreements, property of the company available to pay creditors’ claims in terms of the Business Rescue plan, the order of preference in which the proceeds of the property will be applied to pay creditors if the Business Rescue plan is adopted, the benefits of adopting the Business Rescue plan as opposed to the benefits that would be received by creditors of the company if the company were to be placed in liquidation and the effect that the Business Rescue plan will have on the holders of each class of the company’s issued securities.


Assumptions and conditions


  • including a statement of the conditions that must be satisfied for the Business Rescue plan to come into operation and be fully implemented, effect on employees and their conditions of employment, the circumstances in which the Business Rescue plan will end and a projected balance sheet for the company and a statement of income and expenses for the ensuing three years.


A vote supported by the holders of more than 75 per cent of the creditors’ voting interests, as well as at least 50 per cent of the independent creditors’ voting interests will indicate a preliminary approval of the proposed Business Rescue plan [section 152(2)].



7    What is the role of a Business Rescue Practitioner and can he/she be removed from office?


A Business Rescue Practitioner is a person appointed, or two or more persons jointly appointed, to oversee a company during Business Rescue.


The Business Rescue Practitioner is required, as soon as possible after appointment, to investigate the company’s affairs, business, property and financial situation, and thereafter consider whether there is any reasonable prospect of rescuing the company [section 141(2) of the Act].


Once a company commences Business Rescue proceedings voluntarily in terms of section 129 of the Act, the board must appoint a Business Rescue Practitioner within five business days after filing the relevant resolution with CIPC. Within two business days after the appointment, a notice of in respect of same must be filed with CIPC and each Affected Persons must be notified within five business days thereafter [section 129(4) of the Act].


If the court makes an order for Business Rescue proceedings to commence in terms of section 131(4)(a) of the Act, it “may” appoint an interim Business Rescue Practitioner nominated by the applicant. This appointment will, however, be subject to approval by the majority in value of the independent creditors at the first meeting of creditors.


In terms of section 139 of the Act, a Business Rescue Practitioner may be removed from office either:


  • by order of court in terms of section 130(1)(b) of the Act, if an affected makes application to set aside the appointment of a Business Rescue Practitioner on the grounds that the practitioner


    • does not satisfy the requirements of section 138 of the Act;
    • is not independent of the company or its management; or
    • lacks the necessary skills, having regard to the company’s circumstances;


  • upon request of an affected person, or on its own motion, the court may remove a practitioner from office on any of the following grounds:


    • Incompetence or failure to perform the duties of a business rescue practitioner of the particular company;
    • failure to exercise the proper degree of care in the performance of the practitioner’s functions;
    • engaging in illegal acts or conduct;
    • if the practitioner no longer satisfies the requirements set out in section 138(1) of the Act;
    • conflict of interest or lack of independence; or
    • the practitioner is incapacitated and unable to perform the functions of that office, and is unlikely to regain that capacity within a reasonable time.



8    What is the effect of Business Rescue on the directors, employees and shareholders of a company?




During Business Rescue, the directors continue to act, exercising management functions, but are subject to the Business Rescue Practitioner’s authority and direction. The directors are expected to attend to the Business Rescue Practitioner’s requests at all times and provide any reasonable requested information [section 142].


Any action by a director which would require the Business Rescue Practitioner’s approval and has not been obtained is void [section 137(4)].


In terms of section 137, the directors of the company:


  • must continue to exercise the functions of a director, subject to the authority of the Business Rescue Practitioner;


  • have a duty to exercise any management function within the company in accordance with the direction of the Business Rescue Practitioner, to the extent that it is reasonable to do so;


  • remain bound by the requirements concerning the personal financial interests of the directors or related persons; and


  • to the extent that the director acts in accordance with subsections (b) and (c) of this section, are relieved from the duties of a director as set out in section 76 (standards of directors conduct), and the incurrence of personal liability set out in section 77 (liability of directors and prescribed officers), other than section 77 (3) (a), (b) and (c) of the Act.





Section 136 of the Act safeguards the interests of employees during Business Rescue. It provides that employees of the company will remain employed by the company on the same terms and conditions on which they were employed prior to the commencement of Business Rescue. The only valid changes to an employee’s employment contract are changes in the ordinary course of attrition, or if the employee and the company in accordance with applicable labour laws, agree to different terms and conditions of employment.


As ‘Affected Persons’ employees are involved and may actively participate in the proceedings and have the same rights and right to information as creditors.


An employee is considered a preferred unsecured creditor. Accordingly, any remuneration that becomes due and payable by a company to an employee during Business Rescue, will be regarded as “post-commencement finance” and will be paid in the order of preference as set out in Section 135(3)(a) of the Act.


Should retrenchments be unavoidable, then same will be subject to section 189 and 189A of the Labour Relations Act 66 of 1995 and other applicable related legislation.




  • During proceedings, any alteration in the classification or status of any of the issued securities of the company – other than by way of transfer of securities in the ordinary course of business is invalid, except if the court otherwise directs or such alteration is contemplated in and approved in the Business Rescue plan [section 137 of the Act].


  • Shareholders are permitted to vote on the Business Rescue Plan only when the plan purports to alter rights associated with the class of securities they hold or as creditors in instances where they have made loans to the company, however, they will not be classified as independent creditors.



9   How do Business Rescue proceedings end?


In terms of section 132 of the Act Business Rescue proceedings end when:


  • the court sets aside the resolution or order that began the Business Rescue proceedings or when the court converts Business Rescue proceedings into liquidation proceedings;


  • the Business Rescue Practitioner files a notice (Form CoR125.2) of termination of Business Rescue proceedings with CIPC; or


  • a Business Rescue plan has been proposed and rejected and no Affected Person has acted to extend the proceedings in any manner contemplated by the Act or a Business Rescue plan has been adopted and the Business Rescue Practitioner has subsequently filed a notice of substantial implementation of the plan (Form CoR125.3).



10   Business Rescue or Liquidation?


As indicated above, the purpose of Business Rescue is to rehabilitate the financially distressed company and to rescue it by means of a plan that will help the company to turn its financial distressed position around and trade on a solvent basis again, with a better return for creditors than liquidation. With liquidation on the other hand, the objective is to dispose of the assets of the company and apply the proceeds thereof to pay the creditors of the company in terms of a legal order of preference.


Business Rescue provides for the company’s debt to be managed and contracts to be restructured in order for the company to continue operating on a solvent basis, rather than selling off all of the company’s assets and the company being shut down as in the case of liquidation. Should Business Rescue be unsuccessful, the Business Rescue Practitioner may apply to court to have the company liquidated. The Business Rescue process is therefore a last resort to try and turn a company around before it has to close its doors for liquidation.


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