Companies are always in constant cycles, the highs, the lows and the break-evens. It is part of business and a reality that all businesses do experience these cycles. It is therefore import for entrepreneurs to make the right choice at the right time to provide the company the best possible opportunity to survive during the low cycles.
One of the options to consider when your company seems to be going pear-shaped and you do not foresee immediate recovery, is Business Rescue.
The Companies Act 71 of 2008 (the “Act”) makes provision for a company, which is in financial distress, to commence with business rescue proceedings in an attempt to rescue the company and trying to ensure that the creditors are paid and employees keep their jobs.
However the Act goes further by imposing a statutory obligation on the board of the company to make a decision whether or not the company will commence with business rescue once a company is in financial distress, and it seems that the company will not be able to pay its debts when they are due for payment in the immediate six months.
In a recent case the court stated that business rescue proceedings are neither for the terminally ill, nor for the chronically ill companies. They are for the ailing companies, which given time will be rescued and become solvent again.
This statement supports the contention that a company must at first signs of financial distress apply for business rescue. In the event that a company becomes more than financially distressed other options, such as liquidation, will become more attractive. Business rescue is aimed at rescuing the business from insolvency.
In the articles to follow, we will discuss business rescue proceedings more comprehensively by elaborating on the process. We will explain the effect that business rescue will have on the company, as well as all affected persons, including the role of the business rescue practitioner as well as each affected person during the business rescue proceedings.