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Benefits of Business Rescue

January 15, 2016

The Business Rescue process offers a variety benefits other than the obvious continued existence of the company.

In terms of the Companies Act, a successful Business Rescue is where the company continues in existence on a solvent basis or where creditors receive a better return compared to the immediate liquidation of the company.

It is often impossible for a company to continue on a solvent basis. However, in such instances it is more often than not that the operations of the company can be would down in Business Rescue in a manner that results in a better return for creditors compared to the immediate liquidation of the company.

The reasons for the improved return are that company assets may be realised in a controlled fashion compared to being realised on a liquidation auction as well as saving on liquidator’s fees.

In most instances companies can continue on a solvent basis provided that a percentage of the debt of the company is written off by agreement with creditors. Although such an arrangement could cause creditors damage, creditors can benefit from the continued patronage of the company after being rescued.

Other benefits from the continued existence of companies include:

  • Continued contribution to the fiscus through income tax, VAT and PAYE.
  • The preservation of employment opportunities in an economy where opportunities are scarce and the accompanying continued support of families who could otherwise become destitute.
  • Continued consumer spending by retained employees stimulating other businesses.
  • Preservation of equity where the sale in execution of financed assets (more often than not below market value) is avoided, in relation to the company in rescue and in relation to retained employees who could otherwise not service any of their personal debts (mortgage, vehicle finance) had the company been liquidated and the employment opportunities lost.

It is clear that the benefits of a successful Business Rescue accrue to a far wider audience than only the creditors of a company.