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Termination of Business Rescue Proceedings

April 6, 2015

Business Rescue proceedings are brought to an end by either

  • a court order on application by an affected person or by the Business Rescue Practitioner (BRP),
  • by a notice of termination filed by the BRP with the Commissioner (CIPC); or
  • by a business rescue plan that has been adopted and substantially implemented or rejected without any further steps being taken.

When business rescue proceedings are terminated, other than in the case of the plan being adopted and implemented, liquidation normally follows. Our courts have ruled that it is the duty of the BRP to make the liquidation application if

  • the BRP concludes that there is no longer any prospect of rescue; or
  • if the business rescue plan has been rejected by creditors or shareholders.

In practice the liquidation application is not only time consuming and an expensive exercise but also grants an opportunity to any of the affected persons to appose such application, resulting in further delays and costs, ultimately to the detriment of creditors.

BR Practitioners are increasingly addressing this scenario by including an exit strategy as part of the rescue plan whereby a “liquidation” process is proposed within the business rescue proceedings, either as an alternative to the normal business plan tabled, or to follow when the company in business rescue is not able to comply in terms of the rescue plan.

A liquidation process within business rescue serves creditors well in the sense that they will receive a better dividend than in liquidation. The legal costs for the liquidation application as well as the costs of the liquidator are avoided and creditors will receive dividends much sooner than in liquidation. With the current delays in our court system and at the Masters Office, it could take as long as 6 months for the liquidator to be appointed and up to 3 years for creditors to receive their dividends.

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