Keep fighting a bit longer
BUSINESS RESCUE: HAVE BREATHING ROOM
However, there is a price to pay and the success rate is often disappointing.
Entrepreneurship is characterised by many virtues, such as the will to continue fighting even when the odds are stacked against you. And until 2008, entrepreneurs did not have much legal ground to stand on with respect to saving their businesses from bankruptcy.
However, the amendment of the Companies Act introduced a different type of legal tool, in the form of business rescue.
According to the Act, business rescue is the process whereby a financially distressed company can voluntarily or by court order be given time to rehabilitate itself in an attempt to become solvent again.
Essentially the company is given six months to restructure its debt to a manageable state. During this period a temporary order against claimants is awarded that prevents creditors from taking any legal action against the company.
To qualify a business has to prove it is unlikely to meet its debt obligations as they become due in the coming six months.
Additionally, a business rescue practitioner must draft a plan which must be presented to stakeholders, mainly creditors, who must accept the plan before the process of salvaging the business begins.
Business rescue sounds like a fantastic tool to buy time. However, it comes at a price which could be more costly than the financial cost of business rescue.
The Act stipulates a business rescue practitioner must be appointed by the company. The practitioner must be a legal, accounting or business management professional who is proficient in finance. Additionally the practitioner must be accredited and licensed by the Companies And Intellectual Property Commission.
It is the role of the practitioner that might unsettle a number of entrepreneurs.
Essentially the practitioner is appointed to reduce the company’s debt burden, allowing it to return to normal operating circumstances. To achieve that, the practitioner needs control over its affairs.
The practitioner is regarded as an officer of the court and given full control of business affairs, even to the point of stripping away some of your power. All the major decisions you would readily make alone must be approved by the practitioner. And if you do not like what he/she is doing, the only way to remove them is by court order.
Statistically business rescue doesn’t do so well, recording a 10% to 15% success rate.
However, there is no harm in a last-ditch attempt to save your business. Who knows, you might fall into the 10% to 15% category.