South Africa: Termination And Duration Of Business Rescue Proceedings

Last Updated: 10 April 2012
Article by Jameel Patel

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 business rescue.

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 proceedings; and

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 that:

a)    There is no reasonable prospect for the company to be rescued, the practitioner must:

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 liquidation;

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 persons, and

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; or

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 proceedings, or

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 implemented.

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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