087 237 9752
083 629 6860

Business Rescue as an Alternative for Creditors

April 26, 2016

As previously indicated Creditors of a company are important role players in any Business and therefore seen as affected persons when it comes to Business Rescue.

As soon as a company fails to pay its debt to a Creditor, he may, in terms of Section 131 of the Companies Act, launch a formal application to court where he requests the court for an order placing the company under supervision and that the business rescue proceedings must commence.

In order for the Creditor to be successful in its application he, must indicate that the company –

  • is financially distressed;
  • has failed to pay over any amount due to the Creditor in terms of its obligations; or
  • It is otherwise just and equitable to do so for financial reasons.

For a Creditor must also indicate that there is a reasonable prospect of rescuing the company.

This means that the company must be able to either continue in existence on a solvent basis or failing this, provide a better return for the Creditors of the company than would ordinarily result from its liquidation.

The courts have considered numerous business rescue cases and have provided directions as to what is required in order to show that there is a “reasonable prospect” of rescuing a company. The Creditor must be able to indicate the cause of the demise of the company or the reasons for its failure and provide a proposal in order to remedy such demise that is likely to be sustainable. In support of this, one would need to provide objectively ascertainable facts, which facts are not mere speculation, indicating that the remedy proposed is reasonable and sustainable.

Once the matter is heard, the court may then order the company to be placed under supervision, to begin business rescue and appoint an interim practitioner.

The purpose of Business Rescue is to save the company, its employees as well as effected persons and for this reason it is important to act immediately and not wait until there is no other option but liquidation.