One of the purposes of the Act is to provide for the efficient rescue and recovery of financially distressed companies in a manner that balances the rights and interests of all relevant stakeholders.
In order to adopt a proposed Business Rescue Plan more than 75% of the creditors’ voting interest in value must support the Plan, a stringent requirement that ensures proportional representation between creditors and a result approved by a substantial majority.
The Act provides for only 2 meetings of creditors, the first to consider the need for creditors’/employees’ committees and the second to determine the future of the company by adopting or rejecting the proposed Business Rescue Plan.
The Act further provides that Business Rescue proceedings end when the Practitioner files a notice of substantial implementation of the Business Rescue Plan as adopted.
It is conceivable that circumstances may change before substantial implementation in such a manner that, considered narrowly, the Business Rescue Plan fails on account of not being able to comply with the provisions of the adopted Plan. On account hereof it is common practice amongst Practitioners to provide for the taking of instructions from creditors by not closing the meeting to determine the future of the company or by incorporating a mechanism for such instruction into the Business Rescue Plan.
In this manner the Practitioner is able to respond to changing circumstance and submit any proposed amendments to the Business Rescue Plan to creditors for approval. The same 75% requirement remains ensuring that a Business Rescue will only continue after a change in circumstances with the approval of creditors.
Such actions by Practitioners, in our view, create a balance between the interests of the company on the one hand and those of creditors on the other by preventing the unnecessary failure of Rescues bound by rigid Business Rescue Plans whilst also protecting creditors from unduly protracted Rescue proceedings.
Disclaimer: The contents and information provided above are generalised and must not be acted upon as legal advice