Business rescue cases to increase

LENGTHY DELAYS INCREASE THE RISK OF MORE LIABILITIES Calls for specialist courts to deal with matters within the prescribed time frame have increased.

The struggling SA economy may lead to a higher number of companies falling into financial distress and having to apply for business rescue, a daunting outlook given the time it can take before a matter comes before court.

The concept of business rescue was introduced through the Companies Act in 2011. The process requires that a business rescue plan is implemented within 90 days from when the company files its notice to start business rescue.

South African Institute of Professional Accountants (Saipa) technical and standards executive Faith Ngwenya says for all practical purposes this is impossible to achieve, given current delays. “The urgency to have specialist courts that can deal with the matters efficiently and quickly has never been so great,” she adds.

The process’s main aim is to reduce the number of companies that goes into final liquidation. Business rescue can be initiated by an application to court when the business is financially distressed. However, often the application’s only heard three months after the notice was filed.

Ngwenya says statistics from the Companies and Intellectual Property Commission (CIPC) show that in 78% of cases it took over six months for the ‘substantial implementation’ of proceedings.

She says during a business rescue process, the business is protected from any action that can be taken by creditors and the company’s allowed to operate under the supervision of a business rescue practitioner. However, lengthy delays in the process increase the risk of additional liabilities for the company and the potential of greater financial losses for creditors. According to CIPC statistics the industries with the greatest number of business rescue proceedings include retail (vehicle repairs), information and communication, and construction.

Ngwenya says courts need specialist skills to deal with the complexities of the Companies Act and the business rescue process.

“Business rescue is fairly new in South Africa, and although one can argue that a judge or a magistrate will use his professional judgment to take the correct decision, one has to acknowledge that these are not cases they deal with on a daily basis.”

The Department of Trade and Industry (dti) is the custodian of the Companies Act and CIPC is the implementer. “There needs to be an agreement between the dti and the Department of Justice that the establishment of specialist courts needs the priority it deserves.” – Saipa