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Business Rescue – Creditor’s Frustration

September 16, 2015

A typical email from a frustrated creditor:

“We rent out equipment at monthly installments. One of our customers has not been paying us for the last 10 months, as they are in business  rescue. What are our rights as a supplier? Do we have a right to payment or how does it work. What I basically need to know is, are they supposed to pay us or not? Do we have rights?”

The short answer to this is “Although you have rights, they do not have to pay until the business rescue plan has been adopted by the creditors.” All creditors’ claims are dealt with in the business rescue plan. Creditors have the right to either vote for or against the plan. A creditor should bear his dividend in a liquidation versus what he will be getting in terms of the rescue plan in mind when exercising his vote.. All creditors are bound by the rescue plan once it is adopted by a 75% majority (based on value of claims) of creditors present and voting at the second meeting of creditors.

If the practitioner decides that there is no possibility of rescue or if the rescue plan is rejected, liquidation will follow. Until such time the creditors cannot institute legal action for repossession of this equipment. The practitioner could decide to tender the equipment back to the creditor or carry on with the lease in which case the lease payments would receive preference over other creditors’ claims for goods and/or services rendered before the commencement of the business rescue.

Creditor frustration normally stems from a lack of understanding of the rescue process and the rights of creditors. All the relevant information regarding a specific business rescue such as the affidavit setting out the background and reasons for the financial distress, particulars of the practitioner, minutes of meetings as well as the rescue plan can be obtained from CIPC.

Disclaimer: The contents and information provided above are generalised and must not be acted upon as legal advice