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Spark's Rescue & Remediation Approach

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 likely.

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 creditors,

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 operations, 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 of their duties).
  • It demands the formulation of a Business Rescue Plan, that addresses 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 to be implemented.

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 company.
  • 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 begin, since:

  1. Your access to the business might be severely limited in this process.
  2. 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!) 
  3. Creditors are far less forgiving and have much more power., although entering the process can be seen as a good faith attempt to
  4. Most registered business rescue practitioners approach the rescue from a legal point of view, with creditors obviously having a large say in matters.
  5. There are conflicting incentives, despite the stated intent of the process.
  6. This is an expensive affair, and frankly, rushed.

Reasonable Prospects

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 Spark! gives you a better chance of rescue plan plan approval