Business rescue legislation has been introduced to rehabilitate companies, small, medium or large, that are still economically viable but financially distressed. A temporary moratorium on creditor’s rights is provided with outside intervention in the supervision of the company, while a plan is developed to ensure the company continues on a solvent basis. The underlying philosophy is the preservation of jobs and democratisation of the workplace.
According to the Companies & Intellectual Property Commission (CIPC), as at April 30 2013, 934 businesses, including close corporations, private and public companies, had either filed notice to begin business rescue proceedings or approached a court requesting to be placed in rescue. Among the high-profile cases were 1time, B&J Meltz and Blyvooruitzicht Mine.
Of the companies to which Credit Guarantee has been exposed, 265 have filed for business rescue, 143 of which are still in progress , while 122 have been finalised. Of those finalised, 53 went into liquidation.
Concerns have been raised about the number of business rescue practitioners (BRPs) available to handle the applications. CIPC has accredited 140 practitioners for interim conditional licences, matched by industry knowledge to the projects for which they were nominated. The BRP receives a licence for each project; once the project is concluded, the licence expires. Where complaints of noncompliance have been received, CIPC will consider revoking licences.
Some significant developments in business rescue in 2012 were: the court ruled that in business rescue no preference would be given to the SA Revenue Service and that it would be treated as an “ordinary” concurrent creditor. On enforcement of suretyship in business rescue, the court ruled that people who stood surety for the company would not be released from their obligations. A BRP was removed by the high court with a cost order against him and the original resolution to commence rescue proceedings was set aside. A new order placing the entity into rescue was granted and the practitioner replaced. In one case the term “reasonable prospect” was examined to ensure it entailed a genuine attempt to achieve the aims of business rescue. It was ruled that the business rescue application had no merit.
Some trends in 2013: creditors are becoming more informed, are thinking “out of the box” and getting involved in rescue plans. They do not merely accept information given by BRPs as fact. Creditors are requesting equity stakes in the business as opposed to payouts or they propose extended repayment periods to avoid having to compromise their debt owed. Liquidation applications are being brought by BRPs where creditors are opposing proposed rescue plans; qualifications and suitability of the practitioner are being questioned through court application and the impartiality of the practitioner is being attacked. There is a lack of post-commencement financing as working capital to continue to run the business — funders are risk averse and not comfortable with the process and BRPs.
Questions being asked are: when should a BRP file for substantial implementation? Should he withdraw from the business as soon as possible to save costs or be involved until all creditors are paid in full as per the adopted business rescue plan? How safe is it to leave the business in the hands of the management that brought about its downfall? Is business rescue a long– or short-term fix?
There is a need for a regulatory body to ensure BRPs have the necessary formal qualifications and that there is personal liability for BRPs that don’t perform, with concomitant claims and disciplinary action against them.
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