The new chapter 6 – Business Rescue

 

  1. . BACKGROUND

In South Africa, insolvency is generally regarded as a sign of failure. There is a significant stigma attached to it and insolvent debtors are suspected of being either reckless or dishonest, or both.

I believe that this view was a major contributing factor to the failure of judicial management in South Africa (Under our Old Companies Act of 1973): the decisions of the courts in judicial management applications displayed a mistrust of this procedure which was regarded as an infringement on the rights of creditors because it prevented them from exercising their right to liquidate a company to obtain payment of their claims.

Our new South African model (Companies Act 71 of 2008) defines ‘business rescue’ as proceedings to facilitate the rehabilitation of a company that is financially distressed (see below) by providing for:

  • The temporary supervision and management of the company by a business rescue practitioner;
  • A temporary moratorium on the rights of claimants against the company or property in its possession: and
  • The development and implementation (if approved) by a plan to rescue the company by restructuring its affairs, business, property, debt, other liabilities and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis, or provides a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.

A company is ‘financially distressed’ when it appears to be reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable within the immediately ensuing six months, or it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months.

An affected person, in relation to business rescue plans of a company is:

  • a shareholder or creditor of the company;
  • any registered trade union representing employees of the company; and
  • Each employee of the company or their representatives, if any of the employees are not represented by a registered trade union.

How does the business rescue model work?

There are two ways of initiating business rescue proceedings:

a) Proceedings may be initiated by the company when the board resolves that the company voluntarily begins business rescue proceedings and is placed under supervision. This will happen if the board has reason to believe that the company is financially distressed and there appears to be a reasonable prospect of rescuing the company. Such a resolution may not be adopted if liquidation proceedings have already been initiated by or against the company and takes effect only when it is filed with the Companies and Intellectual Property Commission (hereafter referred to as the ‘Commission’). After adoption of the resolution, the company must publish a notice of the resolution in the prescribed manner to every affected person (shareholders, creditors and all employees, whether represented by a registered trade union or not), appoint a business rescue practitioner and notify the Commission and those affected of the appointment.

b) Court order to begin business rescue proceedings. In the absence of a resolution by the board of directors to voluntarily begin business rescue proceedings, an affected person may apply to a court for an order placing the company under supervision and commencing business rescue proceedings. A copy of an application brought by an affected party must be served on the company and the Commission, and each affected person must be duly notified.

What you should know

Each affected person has the right to participate in the hearing of an application to begin business rescue proceedings.

After considering an application by an affected person, the court may either make an order placing the company under supervision and commencing business rescue proceedings if there is a reasonable prospect for rescuing the company or dismiss the application. If the court makes an order placing the company under supervision the court must also make a further order appointing an interim practitioner, subject to ratification by the holders of a majority of the independent creditors’ voting interest at the first meeting of creditors.

After the adoption of a resolution by the board to implement business rescue proceedings, but before the adoption of a business rescue plan, an affected person may apply to a court with the requisite jurisdiction for an order setting aside the resolution; setting aside the appointment of the practitioner; or requiring the practitioner to provide security to secure the interests of the company and any affected persons

Rights of affected persons during business rescue proceedings

  • For purposes of business rescue proceedings, the employee will, in certain circumstances, be a preferred unsecured creditor of the company.
  • Each creditor is entitled to notice of, and participation in, each court proceeding, decision or meeting. Each creditor also has the right to vote to amend, approve or reject a proposed business rescue plan and if such business rescue plan is rejected, a further right to either propose an alternative business rescue plan or present an offer to acquire the interests of any / all of the other creditors (who voted against the approval of the business rescue plan).
  • Creditors may form a creditor’s committee and are entitled to consult with the practitioner during the preparation of the business rescue plan. Voting by creditors occurs as follows:
  • a secured or unsecured creditor has a voting interest equal to the value of the amount owed; and
  • A concurrent creditor who would be subordinated in a liquidation has a voting interest equal to the amount that the creditor could reasonably expect to receive (the practitioner will request such amount to be independently and expertly appraised and valued).
  • Each shareholder (holder of any issued security) of the company is entitled to receive notice of, and to participate in, each court proceeding, decision or meeting. If a proposed business rescue plan alters the rights of any class of holders of securities in the company, at a meeting of such holders each person is entitled to vote to approve or reject such business rescue plan. If the business rescue plan is rejected, such holders may either propose the preparation of an alternative business rescue plan or present an offer to acquire the interests of any or all of the creditors or other holders, who voted against the approval of the business rescue plan, of the company’s securities.

What you should know: Creditors and employees and/or its recognised trade union may form committee and are entitled to consult with the practitioner during the preparation of the business rescue plan

The Business Rescue Plan, various time periods that must be adhered too and the courts view and rulings on business rescue.

How does the Business Rescue Procedure work?

  • The appointed BRP is an officer of the court [s140(3)(a)]
  • The BRP takes over full control from the board of directors
  • He may remove any person from his position and appoint another person in his place.
  • The BRP may not appoint any person to management who:
    • Impartiality, integrity of objectivity is compromised by a relationship with the company, or;
    • Has is a relative of someone related to the company
    • He must report to court as by the rules of the court [s140(3)(a)]
    • The directors must as soon as possible deliver to the BRP al books, records and relevant information. [s142(1)]
    • Within 5 days from commencement of the Rescue proceedings, the practitioner an statement of affairs which must disclose at least [s142(3)]details of:
      • Material transactions within 12 months before the Rescuer commenced
      • Any court-, arbitration- or administrative proceedings that the Company is involved in.
      • Assets and liabilities over the past 12 months
      • Income and expenses over the past 12 months
      • The number of employees
      • Collective or other agreements relating to the rights of the employees
      • Debtors and their obligations to the company
      • The BRP must investigate the Companies affairs, business, property and financial situation and determine if there is a reasonable prospect of rescuing the company. [s141(1)]
      • If there is no a reasonable prospect of rescuing the company, he must inform the court, the company and all affected persons, discontinue the business, where after the company must be liquidated. [s141(2)]
      • The BRP must, within 10 days of appointment hold a meeting of creditors [s147] & a meeting with the representative of the employees [s148]. He must inform them if there is a reasonable chance of saving the company. They must be informed that each of these groups is allowed form a committee to represent them.
      • Notice of this (first) meeting must be given to all creditors, trade unions, and creditors (they must be obviously notified of time, date, place and agenda)
      • Once the company out of its financial difficulty, he must notify court, the company and all affected persons, and apply to court for the termination of the Rescue Order. [s14(2)(b)]
      • The BRP must consult with the management of the company and prepare a Business Rescue Plan as envisaged in section 150(2).
      • The Plan must be availed to all affected parties, who must decide whether they accept the Pan or not.
      • The plan must be compiled under four headings; Background, Proposals, Assumptions and Conditions. See the FAQ – What must be covered with in the Rescue plan?
      • The Business Rescue Plan must be published within 25 work days after the BRP was appointed. This period can be longer if the court so directs. [s150(5)]
      • Within 10 business days after publication of the Plan the BRP must convene creditors and other holders of voting interest. Notice of this meeting must be sent out at least 5 business days beforehand. The notice must set out:
        • Date, time, place and agenda, and further:
        • A summary of the rights of affected persons to participate and vote at the meetings. [s151]
        • At the first meeting of creditors:
          • The BRP may receive proof of claims by creditors. [147(1)(a)(i)]
          • The Rescue Plan is introduced, considered, voted on (with or without amendment)
          • If the majority Accepts the plan, it is binding on the company, the creditor & shareholders.

MOST COMMON QUESTIONS

1) What is the Purpose of The Business Rescue Procedure?

  • Business Rescue aims to do exactly what the name says; to rescue or rehabilitate a Company which is under financial duress. A rescue plan must be drawn up by the Business Rescue Practitioner (in consultation with certain parties), which must be implemented in an attempt to save the Company.

2) What’s new and what changed from the old Act?

  • Before 1 May 2011, the appropriate procedure to rescue a Company was known as “Judicial Management” (Sec 327 to 440 of The “Old Companies Act”)
  • The idea of “capital maintenance”, which was followed prior to the New Companies Act, nr 71 of 2008, has been replaced by the concept of “Liquidity”.
  • Liquidity is determined by looking at both “factual” and “commercial” solvency. Factual solvency is determined by measuring assets versus liabilities, and Commercial solvency is determined by testing Income versus Expenditure.
  • The liquidation of Companies under the “Old Companies Act” is unchanged (see Item 9 of Schedule 5 to the New Act)
  • Prior to the New Act Judicial Management (Old Act) was applied to save Companies. There was no appropriate mechanism by which Close Corporations could be saved.

3) Sections 128 to 155 of the New Act now create a new procedure by which Companies can be rescued.

  • This new procedure reminds one of Debt Counseling. It is vaguely similar to Debt Counseling on Steroids.
  • In terms of the New Act, Close Corporations can now also be placed und “Company Rescue” (Schedule 6(1) of schedule 3 to the New Act)
  • As from 1 May 2011 no new Close Corporations can be registered.
  • In the interim Act an insolvent was allowed (without the permission of Court of your Trustee) to be a director of a Company. This has however been amended. The new Act was amended shortly before it came into effect. Currently an Insolvent cannot be a Director of a Company without permission of Court.

4) What’s better?

  • Creditors could while your company was under Judicial Management:
    • Acted against you as the surety of your company. If your company is under Business Rescue, creditors cannot take legal action against those who signed surety for the co’s debt
    • Bring an application for the liquidation of your company. This is not allowed under the new Business Rescue Procedure

 

5) My Company is currently under Judicial Jud Management, can I still place it under Business Rescue?

  • Yes

6) What form does the Business Rescue Plan take?

  • Can take many forms, which might include a total or partial restructure of the companies’ Affairs, Property, Business, Shares & shareholding, Debt, Operation and Equity, to make the company commercially viable, and to try and create a better result for the creditors and shareholders than an immediate liquidation would bring.

7) What is the immediate effect of a court Order placing the comapany under Business Rescue?

  • Once the company is placed under Rescue;
    • The Business Rescue Practitioner (BRP) holds a legal position Supervisor.
    • He takes control over: [S118(1)(b)(i)]
      • All affairs
      • Property
      • Business
      • The BRP must develop and implement a Business Rescue Plan, which must be approved. [S118(1)(b)(iii)]
      • Directors stay on in their position
      • No Creditor can apply for the Liquidation of the company [S131(8)(a)]
      • A period of grace (moratorium) is created during which claims against the company is stayed
      • No creditor can take legal action against the company (except as discussed hereinafter)
      • Al Legal Action for the repossession of assets under the control of the company is stayed. [S118(1)(b)(ii)].
      • Creditors are not allowed to take legal action against the persons who have signed surety for the companies’ debt.
      • The company may only dispose of assets:
        • In the ordinary cause of business
        • In a honest (Bona fide) manner which is at arm’s length
        • For a fair value approved in advance
        • Or if such disposal form part of the Business Rescue Plan
        • If property of the company is in possession of a third party as result of a contract entered into before the Rescue Procedure began:
          • He may retain it
          • But the BRP may partially of conditionally cancel or suspend it
          • Any party to an agreement that has been suspended or cancelled has a claim against the company for damages only. [s134 and s136(2) & s136(3)]
        • Any person who wants to exercise any right over a property / asset in possession of the company:
          • Must get the BRP’s written consent
          • The BRP must not unreasonably withhold his consent [s134]
        • The Employees’ Employment contract, obligations and rights under the Labour relations Act are not affected.
          • The usual rule for retrenchment still applies
          • Any monies due to them (even before the Rescue came into effect) are regarded as “Post Commencement Finance”. See the FAQ on Post Commencement Finance.
        • The BRP is an officer of court and he has the responsibilities, duties and liabilities of a director [S75 to s77]
        • If the company is placed under liquidation, the BRP is not allowed to be appointed as the Liquidator of the company

8) What are the rights and Duties of Directors while the company is under Rescue?

  • Directors must:
    • exercise their duties subject to the authority of the BRP;
    • attend to the BRP’s requests;
    • Provide the BRP with information.
    • Actions by Directors without the consent of the BRP, where consent was needed, are void.
    • Directors who do not comply with any of the above conditions can be removed from office by an application to court by the BRP [s137,s75, s76 & s77]
    • Various parties can apply to court to declare a director “delinquent” of to place him under probation.
    • To the extent that they comply with S75 (dealing with directors’ personal financial interests):
      • They are relieved from their duties they have in terms of s76, and the;
      • Their liabilities in terms of s76 of the Act.

9) Can a director be removed?

  • Yes – the BRP can apply to court for his removal. S137(5)

10) On what grounds can a director be removed?

  • A director can be removed in terms of [S137(5) (a) & (b) (i) to (iii)] If a director:
    • failed to comply with his duties in terms of the companies Act;
    • By act or omission, has impeded, or is impeding;
      • The BRP powers or functions;
      • The management of the company by the BRP;
      • The development or implementation of the Rescue Plan.

11) What effect does the Order have on Shareholders?

  • Transfer of shares and alteration of classes of shares are prohibited (S137(1)), except:
    • Transfer of shares in the ordinary cause of business;
    • If done in terms of a court order;
    • If it forms part of the Rescue Plan.

12) Are Directors under obligation to put the company under rescue, or is it a choice under the New Companies Act!

  • If the board of directors of a company has reasonable grounds to believe that the company is financially distressed, they must either (S129(7) (As amended by Sec 82 of Act 3 of 2011) ;
    • Put the company under business rescue, or;
    • Deliver a written notice to all shareholders, creditors, employees and trade unions, that the company is financially distressed, and give reasons why the company is not put under Rescue.

13) How does the Business Rescue Procedure work?

  • The appointed BRP is an officer of the court [s140(3)(a)]
  • The BRP takes over full control from the board of directors
  • He may remove any person from his position and appoint another person in his place.
  • The BRP may not appoint any person to management who:
    • Impartiality, integrity of objectivity is compromised by a relationship with the company, or;
    • Has is a relative of someone related to the company
    • He must report to court as by the rules of the court [s140(3)(a)]
    • The directors must as soon as possible deliver to the BRP al books, records and relevant information. [s142(1)]
    • Within 5 days from commencement of the Rescue proceedings, the practitioner an statement of affairs which must disclose at least [s142(3)]details of:
      • Material transactions within 12 months before the Rescuer commenced
      • Any court-, arbitration- or administrative proceedings that the Company is involved in.
      • Assets and liabilities over the past 12 months
      • Income and expenses over the past 12 months
      • The number of employees
      • Collective or other agreements relating to the rights of the employees
      • Debtors and their obligations to the company
      • The BRP must investigate the Companies affairs, business, property and financial situation and determine if there is a reasonable prospect of rescuing the company. [s141(1)]
      • If there is no a reasonable prospect of rescuing the company, he must inform the court, the company and all affected persons, discontinue the business, where after the company must be liquidated. [s141(2)]
      • The BRP must, within 10 days of appointment hold a meeting of creditors [s147] & a meeting with the representative of the employees [s148]. He must inform them if there is a reasonable chance of saving the company. They must be informed that each of these groups is allowed form a committee to represent them.
      • Notice of this (first) meeting must be given to all creditors, trade unions, and creditors (they must be obviously notified of time, date, place and agenda)
      • Once the company out of its financial difficulty, he must notify court, the company and all affected persons, and apply to court for the termination of the Rescue Order. [s14(2)(b)]
      • The BRP must consult with the management of the company and prepare a Business Rescue Plan as envisaged in section 150(2).
      • The Plan must be availed to all affected parties, who must decide whether they accept the Pan or not.
      • The plan must be compiled under four headings; Background, Proposals, Assumptions and Conditions. See the FAQ – What must be covered with in the Rescue plan?
      • The Business Rescue Plan must be published within 25 work days after the BRP was appointed. This period can be longer if the court so directs. [s150(5)]
      • Within 10 business days after publication of the Plan the BRP must convene creditors and other holders of voting interest. Notice of this meeting must be sent out at least 5 business days beforehand. The notice must set out:
        • Date, time, place and agenda, and further:
        • A summary of the rights of affected persons to participate and vote at the meetings. [s151]
      • At the first meeting of creditors:
        • The BRP may receive proof of claims by creditors. [147(1)(a)(i)]
        • The Rescue Plan is introduced, considered, voted on (with or without amendment)
        • If the majority accepts the plan, it is binding on the company, the creditor & shareholders.

14) What must aspects be covered in the Rescue plan?

  • Background must include:
    • Complete list of assets
    • Securities held over assets
    • Complete list of creditors
    • Creditors’ ranking in preference
    • The probable dividend that creditors would get if the company was to be liquidated immediately
    • Shareholding
    • Copy of a written agreement setting out the BRP’s remuneration
    • A statement declaring whether the rescue plan includes proposals made informally by a creditor.
    • Proposals must include:
      • Details of any moratorium
      • The extent to which the company is to be released from debt payment
      • Details of debt that is to be converted in equity
      • Details of debt that is to be converted in equity in a sister company
      • The future role of the company
      • How existing agreements will be dealt with
      • Property available to pay debts
      • The order of preference in which the property will be applied to debt
      • A comparison between Liquidation of the company versus being under Business Rescue procedure. All affected parties’ position must be considered.
      • The effect on the different classes of securities
      • Assumptions and Conditions must include:
        • The conditions that must be in existence for the plan to be fully operational
        • The effect on the numbers of employees
        • How employees’ conditions of employment will be affected
        • The circumstance in which the Rescue Plan will end
      • Projected financials if the plan was to be adopted, which must show:
        • A balance sheet
        • Income and Expenditure sheet
        • Material assumptions and alternatives must be set out
        • The BRP must certify that the Projections are good faith estimates, based on facts.

15) How is the Business Rescue Practitioners remuneration determined?

  • According to section 143 of the Act the Minister will publish BRPs’ tariffs and fees in the Government Gazette.
  • The BRP may propose a agreement different from the tariffs published in the gazette, which must be approved by the majority of “persons with a voting interest”, in terms whereof, additional to the Gazette tariff, he will:
    • be remunerated on performance
    • Take equity in the company
    • Etc.
    • The BRP’s remuneration must be voted on at a meeting convened for that purpose.
    • The BRP’s remuneration and expenses rank in priority before all other claims.
    • A creditor or shareholder who voted against the BRP’s remuneration may, within 10 business days after the meeting, approach court for an order setting aside the agreement. The court will set the agreement aside if convinced that:
      • The agreement is not just and equitable; or,
      • Having regard for the company’s financial circumstances, the remuneration is extravagant.

16) What types of formal meeting are held while the company is under Rescue?

  • In the daily conduct of business it is obvious that a lot of informal meetings (not required by the act) will be held. The formal meetings follow here under.
  • The prescribed “First Meeting”, within 10 days from the appointment of the BRP. [s147(1)]
  • Meetings to determine the future of the company [s151]
  • Meetings to adopt the BRP’s remuneration proposal.

17) Who can vote on a Meeting held to determine the future of the company?

  • In terms of section 151, persons with a “voting interest” can vote namely creditors, shareholders, employees and Trade Unions on behalf of employees.

18) Who can vote at the Business Rescue Meetings?

  • On any meeting which is not held to determine the future of the company i.t.o s151, the following rules apply:
    • Independent creditors can vote
    • Employees can vote
    • A creditor who is related to the BRP, to a director of the company, or to the company itself is excluded from voting.
    • The vote of majority of the persons that have voting rights is deemed to be the decision of the meeting.
    • Votes are “weighted” according to the value that a creditor is owed.
    • If it is difficult to place a value on the vote of, for example the employees, then the value must be determined by a appraisal. [s145(4) to 145(6) and s128(1)(j)]
    • From the wording in the Act it seems that a party who has abstained from voting is not “deemed” to have voted.

19) What is the function of the Creditors & Employees committees?

  • They can consult with the BRP, but they may not direct or instruct him.
  • They are entitled to receive Business Rescue reports
  • They must report to their Bodies
  • They must act independent from the BRP

20) What is meant by “Post Commencement Finance” (S135)?

  • The Act tries to motivate creditors, bankers, employees and suppliers to support the company to keep on doing business with the company while it is under Rescue. The parties that maintain a business relationship with the company while it is under Rescue become preferent claimants for money which became due to them after Commencement of the Rescue.
  • The company is allowed borrow money whilst it is under rescue, [135(2)(a)] provided that such loans will, in order of preference, rank as stipulated in section 135(3). The loan agreement may include a condition that the company secures the loan by any of its assets which is unencumbered. I will refer to these creditors as “Post Commencement Lenders”, although the act has no such definition.
  • Even if the company goes under liquidation after the Rescue has not succeeded, the preference created by section 135(3) remains, but then includes the cost of liquidation.
  • Section 135(3) creates the following of preference for the “Post Commencement Creditors”:
    • The BRP’ expenses and remuneration ranks first as set out in s143;
    • Employees’ salaries and monies due to them for reimbursement of expenses they incurred on behalf of the company during Rescue ranks second;
    • “Post Commencement Lenders” rank third (and also in order of which they were incurred)
    • Unsecured claims rank last.

21) Why should you not make use of the resolution procedure to put a company under Business Rescue?

  • Should, at the first meeting of Creditors, the creditors vote against the adoption of the rescue plan, the BRP must immediately file a notice at CIPRO (CIPC?) of termination of the Rescue Procedure. The creditors then immediately have legal standing to commence legal proceedings, including the right to:
    • summons for the attachment and return of assets;
    • apply for liquidation of the company, and, not the least;
    • To act against those persons who signed sureties for the company’s debts

22) Who appoints the BRP (S131(5)?

  • When the Recue Application is brought before court, the Applicant in that application proposes to court a BRP who is Qualified to be appointed, and asks that court appoints him.
  • When granting the Rescue Order, the Court may make an order appointing a second (additional BRP) who has been nominated by an affected person. This additional BRP’s appointment must be ratified by the majority of “independent creditors”(calculated in terms of voting rights).

23) Who Removes the BRP?

  • Only the Court can remove the BRP on application by an affected person.

24) Who are “Affected Persons” (Section 128(1)(a))?

  • Shareholders
  • Creditors
  • Employees
  • Relevant Trade Unions

25) Who are “Persons with a Voting Interest” (Section 128(1)(j) read with sections 145(4) to (6))?

  • Independent creditors and Employees
  • Independent creditors - a creditor who is related to the BRP, to a director of the company, or to the company itself is deemed to not have a “Voting Interest”.
  • Employees – if it is difficult to place a value on the vote of, for example the employees, then the value must be determined by a appraisal. [s145(4) to 145(6) and s128(1)(j)]

26) Who is qualified to be appointed as a Business Rescue Practitioner [Sec 138(1)(e)]?

  • The Act introduces a concept of a “professional business practitioner”. He must be:
    • In good standing with a regulated profession. (We will later find out what exactly this means)
    • Trusted;
    • Not disqualified to be a director of a company;
    • Not be placed under probation;
    • He must not be “related” to the company.
    • The Act furthermore (s138(2) stipulated that the minister may (to regulate Business Rescue Practice) designate certain persons or associations as Business Rescue Practitioners, if that person or association:
      • Is committed in achieving Rescues of Companies in accordance with the Act;
      • Functions predominantly to promote sound principles and good practice of business turnaround and rescue; and,
      • Have sufficient human-, financial- and operational resources and adequate administrative procedures and safeguards, to enable it to function efficiently and effectively to carry out its in terms of chapter 9 of the Act, (which deals with Business Rescues).

27) Who May apply to court for a Business Rescue Order (Section 128)?

  • Directors
  • Shareholders
  • Employees
  • Trade Unions on behalf of their members

28) On what grounds will the Court grant the Rescue order?

  • There is it that the company is financially distressed
  • There reasonable prospects of saving the company
  • Procedural requirements were not complied with
  • If the court deems it “Just and Equitable” that the order is granted.

29) What is the effect of on Legal Proceedings during Business the Business Rescue Process (S132)?

  • During the Rescue Proceedings, there is as general moratorium on legal proceedings against the company. Because this moratorium might prejudice the companies legal opponent, the prescribed time periods allowed in the Process Law is also suspended with the same period that the matter was postponed by the moratorium. There are a few exceptions. (S133)
  • Legal proceedings may continue or commence in the following instances:
    • If written consent is given by the BRP;
    • When the court has so ordered;
    • As a set-off in legal proceedings by the company
    • Proceedings about any property or right which the company holds as trustee
    • Criminal proceedings against the company, its directors or officers are unaffected
    • A guarantee or surety by the company is unenforced without leave from the court

30) Can an application For Business Rescue be made after legal proceedings for the liquidation of the company has started?

  • Yes – irrespective if to Application was made by or against the Company. The application for Business rescue suspends the Liquidation Application until the court gave a discussion. Should the Rescue Order be granted then the application for liquidation cannot go ahead. Should the order not be granted, the liquidation application goes ahead.

31) On what grounds can the Court be asked set aside the Rescue order?

  • There is no reasonable grounds for believing that the company is financially distressed
  • There is no reasonable prospects of saving the company
  • Procedural requirements were not complied with

32) How long does the company stay under Rescue Procedure?

  • If the court is convinced (on application by an affected party) that there are not reasonable grounds for believing that the company will not overcome its financial problems – the court will the make an order by which the company is liquidated
  • If an affected party applies to court for liquidation of the company and the court finds that there are grounds for believing that the company will overcome its financial problems – the court will the make an order by which the company remains under Rescue.
  • Should the company come to a compromise with its creditors and all concerned parties accept such a compromise, the court will terminate the Rescue Procedure and make the compromise reached a order of court (Sec 311) of the Old Act read with [xxx]
  • The BRP can make an application to court in terms whereof he asks the court Liquidate the company. If the court is convinced that the company is unable to become successful a liquidation order will be granted.
  • The court always has the discretion to make an order which the court deems fair and equitable.

33) On what grounds can the court remove the BRP?

  • When the applicant proves that the BRP:
    • Lacks the necessary skills
    • Is not independent of the Company
    • Does not comply with the requirements

34) What happens after the court has removed the BRP?

  • The court appoints a different BRP
  • The new BRP must comply with the requirements of a qualified person to be appointed as BRP
  • The new BRP must have been recommended by the majority of independent creditors who were represented at a hearing.
  • These independent creditors include the employees who are not related to the company.
  • The proposed new BRP must not be related to the Company, its directors or the “previous” BRP.
  • The court may order that the new BRP may be given a period to access whether the company’s is indeed financially distressed and to furthermore determine if there is a reasonable chance that the company can be rescued.

35) On whom must the Application for Business Rescue Order be served?

  • Company
  • Shareholders
  • Creditors
  • Employees
  • CIPRO

(Creditors must be notified (by registered post)?)

 

36) What Time Periods is applicable?

  • Within 5 days after the Rescue order was granted, the company must notify all affected persons.
    • Within 5 days from commencement of the Rescue proceedings, the practitioner must draw up a statement of affairs.
    • The Business Rescue Plan must be published within 25 work days after the BRP was appointed. This period can be longer if the court so directs. [s150(5)]
    • Within 10 business days after publication of the Plan the BRP must convene creditors and other holders of voting interest. Notice of this meeting must be sent out at least 5 business days beforehand

(Author: Mr. Johan Engelbrecht: Icon Insolvency Practitioners (Pty) Ltd)
Email: johan@iconinsolvency.co.za
Web: www.iconinsolvency.co.za