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The Effect of Business Rescue on Directors of the company

June 29, 2016

In previous articles, we discussed that it is the duties of directors of a company which is in financial distress to commence with business rescue proceedings. The focus of this article is what the effect will be of business rescue on directors during business rescue proceedings.

In terms of Section 137 of the Companies Act, the directors of the company will remain directors during the business rescue process. However, their powers and duties are restricted in that the business rescue practitioner has full management control over the company.

During this period all directors are still bound by director’s fiduciary duties and duties regarding personal financial interests and can incur personal liabilities as determined by the Act.

The Act further stipulates that as soon as practically possible after the commencement of business rescue proceedings, the directors of the company must deliver all books and records which relate to the company to the practitioner.

Each director of the company must continue to exercise the functions of a director, with the express instructions or direction of the business rescue practitioner, to the extent that it is reasonable to do so.

If any director of the company purports to take any action on behalf of the company that requires the approval of the practitioner, that action is void unless it is approved by the practitioner.

In the event that a director failed to comply with a requirement of the business rescue process or hinders the business rescue practitioner in his performance of his powers and functions and impedes the business rescue proceedings in any way, the business rescue practitioner may, at any time during the business rescue proceedings, apply to a Court for an order to remove a director from office.

It is, therefore, important for directors of a company which is under business rescue to understand that they must provide there full co-operation to the business rescue practitioner to enable him to rescue the company from liquidation.

In articles to follow we will discuss the effect of business rescue on employees and shareholders of the company.