Business Rescue to Survive and then Thrive
What is Business Rescue?
The Companies Act of 2008, Chapter 6, is the legal reference
for Business Rescue in South Africa. As a layman, like most of you
reading this, we try and understand - What is the purpose and intent of
Business Rescue? Who does it apply to?
What implications result from Business Rescue for the business and its
various stakeholders? What time-lines are involved?
Who does Business Rescue Apply to?
Any South African company in "financial distress" or trading
in insolvent circumstances or facing liquidation may apply for Business
Rescue and should be granted this status if indeed it is financially
distressed and importantly, there is a decent argument that there are
reasonable grounds to expect that Business Rescue is possible and
What is Financial Distress?
When a company predicts it cannot meet or will have difficulty paying
off its financial obligations to its creditors it is financial
distressed. The period of time within which this situation is envisaged
or projected is 6 months. This situation is thus expected to lead to
the insolvency of the company within 6 months.
What is the purpose of a Business Rescue?
Any company formally entering the business rescue process will
be given the opportunity:
- to re-organize and re-structure itself, and
- to negotiate and structure a repayment scheme with its
This serves the purpose of:
- Saving jobs and
- Allowing the business to continue trading as a going
concern in the longer term
Practical Implications of Business Rescue
- The act provides a ‘moratorium’ on legal proceedings or
liquidation procedures against any company that is in business rescue.
- It allows for the partial, entire or conditional
suspension of prior contractual arrangements for the duration of the
Business Rescue proceedings.
- It imposes temporary supervision of the company on its
day-to-day affairs and the management of its assets (hence the
involvement of a Business Rescue Practitioner) - note directors are
expected to exercise their functions but subject to the authority
of the Business Rescue Practitioner. If the Standards of a Director
(Section 76 of the act) are not met, existing Directosr may be relieved
- It demands the formulation of a Business Rescue Plan, that
the Balance Sheet (its liabilities and assets), and the Income
Statement (working capital and the generation of self-funding cash), so
that a going concern can emerge.
- The Business Rescue Plan is contractually binding.
- If ratified it expects the Business Rescue Plan
What hurdles must the Business Rescue Plan overcome?
In no particular order.
- The company's creditors can expect a better risk adjusted
rate of return than that expected from the immediate liquidation of the
- Jobs are saved and fewer employees are impacted than in the
event of liquidation.
- The company has a realistic chance of returning to being a
viable contributor to the economy.
- The threshold of creditors voting in support is met.
Spark! Business Rescue & Turnaround
We strongly advise you to act as soon as you can if you have
any fears for the future, even if it is just a quick telephone chat, if we
can't help you we'll help find the right person for you, this could be
a new customer, supplier or investor - we'll help you if we can just
for the reward of having done the right thing.
Our last word on avoiding Business Rescue. Unfortunately, in
South Africa currently the formal Business Rescue process is more a legal one than a
practical business survival one and transpires in a less forgiving "rescue culture" than to be found
the for example in the States with its Chapter 11 processes. This seems to be changing, however
we strongly advise you to act before formal business rescue proceedings
- Your access to the business might be severely limited in
- The chance of finding an "Angel" Investor practically
vanishes (there is plenty of cash begging to find good opportunities if you know
where to look!)
are far less forgiving and have much more power., although entering the
process can be seen as a good faith attempt to
- Most registered business rescue practitioners approach the
rescue from a legal point of view, with creditors obviously having a
large say in matters.
- There are conflicting incentives, despite the stated intent
of the process.
- This is an expensive affair, and frankly, rushed.
Use our skeleton methodology here to assess whether your board is ready to pass a rescue resolution.
Avoid the Court nullifying your rescue status!
Spark! - What you'll get in our Business Rescue Planning
gives you a better chance of rescue plan plan approval