Is your business in financial distress? The law can help

Is your business in financial distress? The law can help you avoid insolvency through a process known as business rescue.

Business rescue proceedings aim to facilitate the rehabilitation of a financially distressed company or close corporation by providing temporary supervision of the company and managing its affairs, business and property; a temporary moratorium (stay) on the rights of claimants against the company; and the development and implementation, if approved, of a plan to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity.

The ultimate aim is to restructure the affairs of a company in a way that either maximises the likelihood of the company continuing on a solvent basis, or results in a better return for its creditors than would ordinarily result from liquidation. A licensed business rescue practitioner is a person, or two or more persons jointly, appointed to prepare a rescue plan and oversee a company during rescue proceedings.

What is the test for business rescue?

The Companies Act defines “financially distressed” (section 128(1)(f)) to mean that it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months (commercial insolvency); or it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months (factual insolvency).

It is important that a company commences business rescue proceedings at the first signs of it being financially distressed, for legal reasons and to increase the likelihood of a positive outcome.

Services

Appointment of the business rescue practitioner, which usually relies on their expertise within the industry. It also relies on the courts’ approval and the approval of the board.

Creation and implementation of a business rescue plan.

Alleviation of tax burdens in a stable and sustainable manner. Tax settlement rendered in a legal manner within the best interests of the business.

Creating a business rescue plan tailored to the business itself before implementing it, with the approval of the board and claimants against the company.

Handling and assisting all legal proceedings.

Prevention of insolvency.