Can a close corporation go into business rescue?

“I have a construction business that is operated in a close corporation. As we have not had much work during the last few months, my business has come under severe financial pressure. I still believe in the business and know things will pick up again, but right now we just don’t have the cash flow to pay our creditors. I’m considering business rescue but am unsure whether that option is available seeing as my business is a close corporation?”

The dramatic effect of the past few months has taken a heavy toll on many businesses, with all businesses having to make plans for their continued operation and even survival in the short term. An option considered in particular by many companies is engaging business rescue proceedings.

The mechanism of business rescue is provided for in the Companies Act 71 of 2008 (“Companies Act”) and offers formal options and processes to assist financially distressed companies in navigating their way out of such distress and to ensure the continuation of the business and the protection of its stakeholders.

Practically, this involves the appointment of a business rescue practitioner who develops and supervises the implementation of an approved business rescue plan to regulate, among other things, the property, debt, affairs and liabilities of the business.

Essentially the business is placed under temporary supervision and management for the duration of the proceedings and a temporary suspension is imposed on the rights of creditors and all existing and possible claims against the business or its property.

With the introduction of the new Companies Act, close corporations, essentially became redundant. Consequently, no new close corporation may be incorporated as of the date of enactment of the new Companies Act.

Existing close corporations may however still continue to exist and conduct business and continue to be regulated by the Close Corporation Act, with certain provisions of the Companies Act finding application to close corporations.

In particular it is provided for in the Close Corporations Act that business rescue proceedings as dealt with in the Companies Act will apply to all existing close corporations.

Therefore, the answer to your question is ‘yes’ you can initiate business rescue proceedings in respect of your close corporation and such proceedings would follow the provisions of the Companies Act. To assist you with business rescue proceedings, it is advisable that you consult your attorney or an experienced business rescue practitioner for guidance on the correct way to proceed.

Angus Pringle is an attorney with Drake Flemmer & Orsmond Attorneys. He can be contacted on 043-722-4210.