With so many businesses facing financial distress as a consequence of the economic fall out of the past 18 months brought about by the COVID-19 pandemic, many are opting for the protective moratorium of ‘Business Rescue Proceedings'. While it is the business rescue proceedings of high-profile companies and state-owned enterprises which are widely reported in the media, between April and October 2020 some 230 South African companies embarked on the process. With the ultimate goal to reorganise and rehabilitate, business rescue offers businesses in financial distress an alternative to liquidation and a potential better recovery for affected persons.

Ailing businesses, that is businesses that are financially distressed and facing commercial or factual insolvency in the immediate six months, opt for the temporary supervision by a business rescue practitioner who oversees the temporary management of its affairs. The process allows for a temporary reprieve and a moratorium on debt obligations which allows the business rescue practitioner to investigate the financial position, reorganise the affairs of the company and return it to a state where it is able to trade insolvent circumstances.

A company enters business rescue proceedings in terms of Section 129 of the Companies Act, 71 of 2008, but by voluntary resolution of the board of directors or involuntarily by application to court by an affected person, such as a creditor, shareholder or employee or their representatives trade union.

Results are best achieved through an ongoing engagement with all stakeholders. As a creditor driven process much value can be derived by working with affected persons to seek a joint solution with the benefit of the temporary reprieve. Our courts also play a robust role in providing clarity and addressing issues which emerge and may not have been anticipated by the drafters of the legislation.

One such example is the issues that arise when dealing with State Owned Entities, where the practitioner's ability to deal with state assets in the normal course are somewhat constrained by legislation governing the use of Public Finances. Unfortunately no definitive jurisprudence has been developed as of yet but given the perilous conditions of the State Owned Entities this is certain to be subject of debate in the not too distant future.

Opting for business rescue should not be delayed and the window period for taking critical and decisive action is a small one. Leaving an ailing state of affairs too long may result in a terminally ill enterprise facing the inevitable liquidation.

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.