What is Business Rescue?

Business rescue, as defined by Chapter 6 of the Companies Act 2008, aims to facilitate the rehabilitation of a company that is “financially distressed” by providing for:

• the temporary supervision of the company and management of its affairs, business, and property by a business rescue practitioner (BRP), and
• a temporary moratorium (“stay”) on activities carried out by the company, as well as enforcement proceedings brought against the company (without the consent of the BRP).

Essentially, the purpose of business rescue is to rescue the company by restructuring its affairs to achieve a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company. It is a proactive and legally required strategy to deal with financial obstacles, with the ultimate goal of restoring the company’s financial stability and avoiding liquidation.

Business rescue proceedings commence when the company voluntarily files for it or through a court application, with the aim of placing the company under supervision and facilitating its recovery.

Who Can Apply for Business Rescue Services?

Any financially distressed company, as defined in Chapter 6 of the Companies Act 71 of 2008 in South Africa, can apply for business rescue. The company must be financially distressed to commence business rescue proceedings. The application can be made by: 

• The board of directors,
• a shareholder,
• or any affected person with a sufficient interest in the company’s financial well-being, such as creditors or employees of the company.

Business rescue in South Africa is a formal legal process, and the company must demonstrate reasonable grounds to believe that there is a reasonable prospect of rescuing the company through the process.

How to Commence Business Rescue Proceedings?

Business rescue can be initiated:

• By the board of directors of the company voluntarily via a resolution; or
• By an application to the court when the business is financially distressed by various affected persons  (including shareholders, creditors, registered trade unions, and employees).

The choice between these options often depends on the specific circumstances and the willingness of the company’s leadership and stakeholders to collaborate. Placing a company under business rescue must occur if there are reasonable grounds to believe that the company will not be able to pay all of its debts as they become due and payable within the immediately ensuing six months.

What Is The Function Of The Business Rescue Practitioner (BRP)?

A business rescue practitioner is appointed to oversee and supervise on a temporary basis the management, affairs and business of the company and to devise, prepare, develop and implement a business rescue plan.  

The plan will be implemented if approved by creditors and shareholders who have to vote on the plan. The plan to rescue the company often involves restructuring its debt and operations to achieve solvency. Development and implementation of the plan must occur within ten business days after the date of appointment, although extensions may apply.

The practitioner must also contemplate whether the company under business rescue has a reasonable prospect of being rescued, failing which, liquidation proceedings might be initiated.

Do the Directors of a Company in Business Rescue Retain Authority?

Regarding the roles and responsibilities of each director of the company in a BR scenario, the following principles apply:

• Continued Exercise of Director Functions: Each director of the company will retain the ability to exercise their directorial functions, but this exercise will be subject to the authority and oversight of the duly appointed business rescue practitioner.
• Assistance to the Practitioner: It is mandatory for each director to actively assist the business rescue practitioner. Their role involves supporting and collaborating with the practitioner in the operation of the company and the continuation of its business activities.
• Delegation of Powers: Directors have the flexibility to delegate any of their powers or functions to the duly appointed business rescue practitioner. The practitioner, in this capacity, assumes full management control of the company.

Where a company is placed in business rescue, directors remain instrumental in supporting the implementation of a business rescue plan and working toward a better return for creditors and shareholders than immediate liquidation.

Business rescue services offer a structured approach to rescuing companies from insolvency, especially following periods like the COVID-19 pandemic that placed many companies under extreme financial distress.

Jacqui Smith (LLB)

Legal Advisor

Business Rescue is a lifeline for struggling companies. Whether initiated by directors or concerned stakeholders, it offers a reasonable prospect of saving the company and protecting jobs. Understanding what business rescue is can help ensure companies pursue the right strategy when facing financial difficulty. Shackleton Risk Management not only provides insights into this critical process but also offers essential support with professional indemnity insurance for business rescue practitioners. If you want to learn more, contact us today.