The stagnant economy together with the impact of loadshedding has caused businesses to fall on hard times. Sadly some businesses have had to close shop with negative consequences for owners and employees.
What is Business Rescue?
In the event of a business being financially distressed the business rescue process assists the business to continue trading with some breathing space being afforded to it while it attempts to restore itself to a profitable position. The appointed business rescue practitioner will assit the guide the business owner during the business rescue period. The test to determine whether a company must be placed under business rescue, is whether the company is financially distressed.
What does financially distressed mean?
A financially distressed business means a business reasonably unlikely to be in a position:
- to pay all its debts as they become due and payable within the immediately ensuing six months; or
- will become insolvent within the immediately ensuing six months.
Who can apply for business rescue?
- A business may voluntarily commence with business rescue proceedings by filing the necessary forms with the Companies and Intellectual Property Commission; or
- An affected individual may make formal application to the High Court. (An affected individual is a shareholder, a creditor or a registered trade union representing employees of the company)
In the case of a company the Board of Directors must pass a resolution to commence the business rescue process and no legal proceeding, including enforcement action, against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced with against the business.
The “pros” and “cons” of Business Rescue
The “pros”
- breathing space for businesses experiencing financial difficulties.
- the suspension or cancellation of contractual obligations by financial institutions.
- a better dividend to creditors than in a liquidation scenario; and
- the saving of jobs and job creation over the longer term.
The “cons”
- the negative publicity which could affect the business.
- the unwillingness of financial institutions to grant finances to a business under business rescue; and
- the mandatory liquidation of the business if the business rescue process is unsuccessful.
Author: Zelda Damons
