Business
Rescue
Process

In recent months, we have witnessed with great despair a number of companies filing for insolvency/bankruptcy due to the effects brought on by covid19 and subsequent trade restrictions.

We have witnessed companies undergoing retrenchments of employees and companies filing for BUSINESS RESCUE (BR) proceedings and these are a variety of companies from private to state-owned companies such as South African Airways (SAA).

According to the Companies and Intellectual Property Commission (CIPC) the status of business rescue proceedings within South Africa, based on the submitted applications, the following was recorded:

⁃ In the year 2019 – 2020 a total of 3298 companies started business rescue proceedings.
⁃ Out of the 3298 cases, 400 of them ended up in liquidation.
⁃ And 1275 are still active.

The report shows that the majority of companies that initiated business rescue proceedings are in fact private companies with Gauteng leading.

Now, this is one of the reasons why I decided on the topic of business rescue for this article. I wanted to share an overview of what the process of business rescue is all about, what type of business can actually apply for BR.

1. What is Business Rescue proceedings?
Business rescue is the proceedings of facilitating the rehabilitation of a company that is financially distressed. (Sec 128(1)(b) Companies Act, 2008).

This provides companies with a temporal stay of any compulsory sequestration proceedings and the opportunity to devise a plan to rescue the company by restructuring its affairs, property, business liabilities in order to extend its existence on a solvent basis.

Therefore, business rescue is meant to extend the company’s lifeline for it to continue operating.

2. How is the process of business rescue initiated/commenced?
Two ways – through a resolution by a board of directors and by court order.

Resolution by the Board of Directors
⁃ Is is important to note that the resolution must be valid and meet all the requirements as set out in section 73 of the Companies Act, 2008.
⁃ Most importantly, the company must not have already initiated liquidation proceedings prior to business rescue.
⁃ The resolution taken must then be filed with the Commission (CIPC) which indicates the official commencement of the rescue proceedings.
⁃ At this point, it is very important for the company to notify ALL affected parties and to appoint a business rescue practitioner, within 5 business days ( except in exceptional cases following permission by the Commission)
⁃ By “affected” parties, these are, according to section 128(1)(a) of the Companies Act, creditors, registered unions, employees and shareholders.

Application of business rescue proceedings by court order:
⁃ In this manner, the application may be brought to court even when liquidation proceedings have already commenced.
⁃ There is precedence showing that courts have in the past, refused the issuance of liquidation orders in order to afford companies with an opportunity to initiate business rescue proceedings, as was the case in the matter between Standard Bank of South Africa Limited v Gas 2 Liquids (Pty) Ltd 2017 (2) SA 56 (GJ).
⁃ Business rescue proceedings can be brought to court by an affected person mentioned above.

It is important to highlight the effects of business rescue proceedings and those of liquidation proceedings on employment contracts:
⁃ Business rescue has no effects on the employment contracts a company has with its employees.
⁃ They (employees) continue to be employed by the company with no change in their employment terms and conditions (parties may in accordance with labour legislation agree on different terms and conditions).
⁃ The employee’s rights are protected by the Companies Act, 2008.

On the other hand, in the case of liquidation proceedings:
⁃ Employment contracts would be suspended
⁃ The no work and no pay scenario applies
⁃ Employees can, by way of a court application intervene in the liquidation process by bringing a business rescue application order, which if successful could mandate the company to maintain all employment contracts as existed prior to the granting of the business rescue order.

Of course, there are many more factors, advantages and disadvantages to be considered before a company initiates business rescue proceedings. As much as the goal of such proceedings is to extend the lifeline of a company, it is a matter of fact that most of these companies end up in liquidation and being wound up.