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How to Object to Business Rescue

April 6, 2015

The filing for Business Rescue by a company in financial distress is regularly perceived by some creditors as purely a delaying tactic and a ploy to postpone the inevitable liquidation of the company.

Unfortunately Business Rescue Practitioners, mostly due to a particular set of circumstances, do take on boarder line cases without proper assessment – only to realise at a later stage of the process that no possibility of a rescue exists. It is suggested that under these circumstances the practitioner should terminate the process sooner than later.

If an affected person feels that the process is being abused he may apply to court for an order setting aside the business resolution on the grounds that there is no reasonable basis for believing that the company is financially distressed, that there is no reasonable prospect for rescuing the company or that the company has failed to satisfy the procedural requirements.

The appointment of the practitioner can also be set aside on the grounds that the practitioner does not satisfy the requirements stipulated in the Companies act, is not independent of the company or its management or lacks the necessary skills. Having regard to the company’s circumstances the court can require the practitioner to provide security (in an amount and on terms and conditions that the court considers necessary to secure the interests of the company and any affected person).

A director of a company that votes in favour of a resolution may not apply to court to set aside the resolution or the appointment of the business rescue practitioner unless such person can satisfy the court that he acted in good faith on the basis of information that has since been found to be false or misleading.

Finally a creditor of the company in business rescue can also demonstrate his objection by voting against the business rescue plan tabled at the second meeting of creditors. The plan can only be adopted by means of a 75% vote in favour of such adoption.

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