BackgroundEven before the new Companies Act of 2008 came into effect on 1 May 2011, the new business rescue proceedings contained in Chapter 6 of the Act generated a lot of interest. There were high expectations that South African corporations in financial distress would at last be provided with a workable and effective rescue procedure that would be more successful than its predecessor, judicial management.
In the period since the Act has came into effect, close to 500 companies have been placed under business rescue and a number of them have already been successfully rescued. It was to be expected that there would be some difficulties in the interpretation and practical application of the provisions of the Act in the beginning, and some of them were almost unavoidable due to bad drafting, unclear or confusing terminology and seemingly conflicting provisions. However, many problems that arose as more and more companies and close corporations started using (and, in some instances, abusing) the business rescue proceedings were not foreseen and exposed other weaknesses and omissions in the Act. Although a number of court judgments have started to address some of the issues other questions remain unresolved.
- a detailed analysis of the provisions of the Companies Act regulating business rescue proceedings
- guidance on the interpretation of problematic and unclear provisions
- an exposition of the rights and duties of directors, creditors, shareholders and employees of the company during business rescue proceedings and their relationship with the business rescue practitioner
- an explanation of the current situation regarding the licensing of business rescue practitioners
- an analysis of High Court judgments on business rescue proceedings so far
Frequently asked questionsThe following questions are discussed:
- Are the directors of a company in financial distress compelled to commence business rescue proceedings and what are the risks if they do not?
- May the directors take a business rescue resolution but refrain from filing it until a liquidation application is launched?
- Is a rescue resolution automatically void if the requirements of section 129 are not satisfied?
- How much information on the proposed rescue plan must be furnished to the court in an application for a business rescue order?
- Which creditors may vote on the business rescue plan and do they first have to formally prove their claims before they are allowed to vote?
- What is the effect of business recue proceedings on pre-existing contracts of the company such as leases, franchise agreements and security provided by the company for its debts, and on sureties and guarantors of the company's debts?
- What are the rights, powers and duties of the directors and the business rescue practitioner during business rescue and what options are available if the board does not agree with the approach or rescue plan of the practitioner?
- Who qualifies for appointment as a business rescue practitioner and how do you get licensed as one?
- What happens if the business rescue plan is rejected?
- Which creditors are bound to an approved business rescue plan?
- How and when do the business rescue proceedings end?