Once a business rescue plan has been approved and adopted and
the business rescue practitioner has been appointed, the question
arises as to how long a company should be allowed to remain under
In terms of section 132(1) of the Companies Act 71 of 2008 (the
Companies Act), business rescue proceedings commence when:
a) A company files
a resolution to place itself under business rescue or applies to
court for consent to place itself under business rescue, or
b) An affected person applies to court for an
order placing the company under business rescue, or
c) A court makes an order placing a company under
business rescue during the course of liquidation proceedings.
In terms of section 132(3) of the Companies Act, if a
company's business rescue proceedings have not ended within
three months after the start of those proceedings, or such longer
time as the court, on application by the practitioner, may allow,
the practitioner must:
a) Prepare a report
on the progress of the business rescue proceedings, and update it
at the end of each subsequent month until the end of those
b) Deliver the report and each update to each
affected person, and to the:
i. court, if the proceedings have been the
subject of a court order; or
ii. Companies and Intellectual Property
Commission (the commission), in any other case.
The purpose of business rescue is to allow the practitioner the
opportunity to take control over the management of the company with
the view to improving the financial standing of the company to the
benefit of creditors, employees and all other interested parties.
The financial standing of a company cannot reasonably be improved
overnight or within a few months. In order for business rescue
proceedings to be effective and for the business to be profitable
and sustainable, the practitioner must be given a reasonable time
frame within which to successfully implement the business rescue
plan. The duration of business rescue proceedings therefore must be
subjective and tailored to suit the financial situation and
potential of the particular company in question. It would be an
injustice to apply strict and narrow time frames within which
business rescue proceedings should be implemented.
In the interest of all parties, however, business rescue
proceedings also cannot be given unlimited reign and an indefinite
period within which to be implemented. In order for a practitioner
to effectively and speedily attempt to turn around the company,
strict controls, measures and forms of accountability need to be
kept in place in order to protect the interests of all affected
parties. Section 132(3) of the Companies Act creates that very
instrument of control and accountability.
After implementation of the business rescue plan, whether
successfully or unsuccessfully, there comes a point where the
practitioner must eventually evaluate the financial standing of the
company and terminate business rescue proceedings.
In terms of section 141(1) of the Companies Act, after being
appointed, a practitioner must investigate the company's
affairs and financial situation and consider whether there is any
reasonable prospect of the company being rescued.
In terms of section 141(2) of the Companies Act if, at any time
during business rescue proceedings, the practitioner concludes
a) There is no
reasonable prospect for the company to be rescued, the practitioner
i. inform the court, the company, and all
affected persons accordingly; and
ii. apply to the court for an order discontinuing
the business rescue proceedings and placing the company into
b) There no longer are reasonable grounds to
believe that the company is financially distressed, the
practitioner must inform the court, the company, and all affected
i. if the business rescue process was confirmed
by a court order or initiated by an application to court, apply to
a court for an order terminating the business rescue proceedings;
ii. otherwise, file a notice of termination of
the business rescue proceedings with the commission
In terms of section 132(2) of the Companies Act, business rescue
proceedings come to an end when:
a) The court sets aside the resolution or order
that began business rescue proceedings or has converted those
proceedings to liquidation proceedings, or
b) The business rescue practitioner has filed
with the commission a notice of termination of business rescue
c) A business rescue plan has been:
i. proposed and rejected, and no affected party
has acted to extend the proceedings;
ii. adopted and implemented in terms of the plan
and the practitioner has subsequently filed a notice of substantial
implementation of that plan
The scheme of the Act follows a common sense approach
– business rescue proceedings must end if the
practitioner decides that the company cannot be rescued, or if his
rescue plan is rejected, or if the company emerges from financial
distress, or finally, if the business rescue is successfully
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Currently in the UAE, laws related to insolvency are unclear. Companies face harsh penalties in a bankruptcy scenario, and individuals can face criminal sanctions and penal sentences.
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