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Business Rescue: Essential Information for Shareholders

July 1, 2024

The Companies Act recognizes shareholders as key participants in Business Rescue proceedings, granting them the locus standi to initiate such proceedings under section 131. This recognition ensures that shareholders can actively engage in and influence the rescue process, which is crucial for protecting their financial interests.

Shareholders’ rights during Business Rescue are comprehensive. Firstly, they have the right to be notified of any event concerning the proceedings. This ensures transparency and allows shareholders to stay informed about the company’s status and any developments. Additionally, shareholders have the right to participate in the proceedings, including court proceedings. This participation can be critical in shaping the outcome of the Business Rescue process.

A significant right granted to shareholders is the right to vote on the proposed Business Rescue plan, but this is contingent upon the plan altering the rights associated with their class of securities. If a shareholder also holds creditor status, their voting rights extend further. Should the proposed plan be rejected, shareholders have the right to propose the development of an alternative plan. They can also present an offer to acquire the interests of any or all creditors or other holders of the company’s securities. This provides shareholders with a pathway to safeguard or potentially regain the value of their investments.

In situations where the plan proposes to alter the rights of any class of securities holders, the Business Rescue practitioner must convene a meeting with those holders. At this meeting, a vote is called to approve the adoption of the proposed plan. For the plan to be adopted, it must receive support from the majority of the voting rights exercised.

Shareholders should be aware that any changes to the classification or status of the company’s issued securities, outside the ordinary course of business, are invalid during Business Rescue unless directed otherwise by the court or the approved plan. This provision is designed to protect shareholders from sudden and potentially adverse changes during the Business Rescue process.

In conclusion, understanding these rights is vital for shareholders as they navigate Business Rescue proceedings. Their active participation and informed decision-making can significantly impact the revival and future value of their shares.