Unique business rescue offering in Lock-down
As is well known throughout South Africa at this stage, the COVID-19 Virus has adversely affected many Small to Medium-sized enterprises around the country.
This pandemic caused the temporary closure of the company or an impacted procedure with suppliers or employees and the significant impact of South Africa’s downgrade to a sub-investment grade. Many entities within South Africa cannot sustain this financial impact on their business.
Our unique Business Rescue offering is placing an entity temporarily in Business rescue even though, before the Nationwide lockdown, the business was not necessarily a candidate for Business Rescue and was a viable concern. Business Rescue Proceedings are initiated when a company is in financial distress.
Business Rescue is defined in Chapter 6 of the Companies Act no.71 of 2008 (hereinafter referred to as “The Act”).
In terms of Section 128(f) of the Act financial distress is defined as:
- It appears to be reasonably unlikely that the company will be able to pay it’s debts as they become due and payable within the immediately ensuing six months; or
- It appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months.
Due to the National lockdown, as per i) above the company is reasonably unlikely to pay its debts as they become due and payable in the ensuing six months.
The Business Rescue process can be initiated for each entity that falls within this category, having been adversely affected by the COVID-19 Virus.
Business Rescue can therefore be utilised in this period to ensure that all businesses have limited exposure towards creditors, landlords and service providers as will be explained more fully below. This is, therefore, a pro-active method to ensure your business opens its doors and can trade with the best possible cash-flow scenario when the time comes to reopen its doors.
It is important to note the following with regards to the business rescue proceedings.
In terms of section 141(2)(b) of the Companies Act if, at any time during business rescue proceedings, the practitioner concludes that:
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
The 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.
Under circumstances where your business starts up after this lockdown as strong and viable as it was before or just up to date will all its monthly obligations the BRP can end the proceedings without the need to continue with the process of publication of a business rescue plan.
One of the essential mechanisms in business rescue is derived from Section 136 of the Companies Act, Act 71 of 2008 in terms of which a business rescue practitioner can suspend any obligation of the company arising out of a contract. It is therefore entirely possible to suspend payment terms of any service level agreement, rental agreement, finance agreement, Royalty agreement, supply agreement while the country is in lockdown and while the other party can suffer little or no damage.
Section 136(2) of the Companies Act reads as follows:
Subject to sections – 35A and 35B of the Insolvency Act, 1936 (Act No. 24 of 1936), despite any provision of an agreement to the contrary, during business rescue
proceedings, the practitioner may cancel or suspend entirely, partially or conditionally
any provision of an agreement to which the company is a party at the commencement of the business rescue period, other than an agreement of employment.
CONCLUSION We are therefore confident that the process of business rescue can benefit all businesses in lockdown and unable to trade during this time. At the very least, business rescue creates the best possible scenario in considering the normal difficulties that will be faced when reopening after the lockdown period.
During July 2011 CIPC started appointing business rescue practitioners on an interim basis, and we have succeeded by appointing one of the first business rescue practitioners in South Africa.
Since then, we have been involved in approximately 33 successful business rescue applications, with the number increasing daily. We have created our panel of professionals consisting of three dedicated attorneys, various legal clerks and supporting staff, as well as three senior business rescue practitioners in the legal and financial profession, with their infrastructure and supporting staff dedicated to our firm.
We have successfully placed companies under business rescue in the following sectors:
- Transport Industry
- Mining Manufacturers and Supplies
- Mining and Mining Exploration industry
- Restaurant industry
- Travel industry
- Property Development industry
- Furniture Manufacturing industry
- Electrical Engineering and supply industry
- Telecommunication industry
- Farming industry
- Industrial Drilling industry
- Construction industry
Through extensive research into commercial law and specifically business rescue legislation, both locally and internationally, we have come to realise the full potential of this exciting industry in South Africa. Due to our extensive knowledge of the various possibilities in Company, Commercial law, and especially in business rescue, we are forced to conclude nondisclosure agreements with our clients, as our expertise may create boundless opportunities in the South African economy.
We have also explored what we refer to as “forceful business rescues” where any affected person, including and especially, creditors can be protected against companies attempting to run from their obligations. In this particular form of business rescue employees, unions, as well as any other affected parties in a company, can substantially benefit in that we can successfully resist major layoffs by employers as well as actively involve employees and unions in the management of such companies.
We are, currently just as equipped to handle voluntary resolutions to commence business rescue in terms of section 129 of the Act or to forcefully commence business rescue through obtaining a High Court Order on the application in terms of section 131 of the Act.
We have furthermore come to realise that one should not construe business rescue to be confined to its textbook definition. Business Rescue is one of the most innovative parts of legislation that our lawmakers have ever contemplated, and we will strive to continue practising in this exciting field.
For any queries contact Werner Cawood specialising in this field directly at email@example.com or phone 066 1983 354.