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Filing for Business Rescue

February 24, 2015

To file for business rescue (BR) is not complicated and can be achieved in a couple of hours. BR creates a moratorium on legal proceedings against the company. No one can execute court orders or commence court proceedings against the entity.

The BR practitioner must draft a BR plan to be voted on by creditors. 75% of the creditors need to vote in favour of the plan.

All affected parties will have to be notified of the BR proceedings.

Once in BR, provided that your lease has not been cancelled before BR, the landlord cannot have you evicted.

A basic BR plan involves weighing up a liquidation scenario against various other options. Creditors usually support plans where their benefit in BR can be shown to exceed the benefit in liquidation.

To file for BR the company must be “financially distressed”. This means that it is reasonably unlikely that the company will be able to pay its debts as they become due in the next 6 months, or, it is reasonably likely that the company will become insolvent in the next 6 months. If a company is financially distressed and the directors/members do not file for BR, they can attract personal liability.

BR offers a controlled environment where the debts and obligations of the company can be investigated and a suitable outcome proposed for all parties involved.

The prescribed fees for BR Practitioners is R1,250 per hour for small companies. Experience has shown that at least 100 hours is necessary, depending on the level of participation by creditors.

A successful rescue is one in the ordinary sense of the word where the business continues and trades itself out of difficulty but also the scenario where the business is closed down but where creditors receive a better dividend than that which they would have received if the company had been liquidated.

The possibility exists where debt of the company can be compromised and the balance repaid over a number of months.

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