What is Business Rescue

WHAT IS BUSI­NESS RESCUE?

What is busi­ness rescue?

Busi­ness res­cue is a pro­ce­dure aimed to facil­i­tate the reha­bil­i­ta­tion of a finan­cially dis­tressed com­pany. The com­pany is placed under the tem­po­rary super­vi­sion of a busi­ness res­cue prac­ti­tioner who man­ages the affairs of the com­pany. There is a mora­to­rium on the rights of all claimants against the com­pany or in respect of all its prop­erty. A busi­ness res­cue plan is devel­oped to res­cue the com­pany by restruc­tur­ing its affairs. This may include a restruc­ture of the busi­ness, its prop­erty, debt, other affairs, lia­bil­i­ties and equity.

What is the pur­pose of busi­ness rescue?

Busi­ness res­cue aims to restruc­ture the affairs in such a way that it allows the com­pany to con­tinue its exis­tence in the future or if it results in a bet­ter return to cred­i­tors of the com­pany than would ordi­nar­ily result from the liq­ui­da­tion of the company.

Is busi­ness res­cue a bet­ter alter­na­tive than a liquidation?

If the prospects of sav­ing the com­pany are good then yes. The process is aimed at return­ing the com­pany to prof­itabil­ity and is an effort to save jobs and allow­ing the entity to con­tinue trad­ing as an eco­nom­i­cally con­tribut­ing entity.

What is an affected person?

An affected per­son is a per­son that has var­i­ous rights through­out the busi­ness res­cue process. These are direc­tors, share­hold­ers, employ­ees or their rep­re­sen­ta­tives and trade unions rep­re­sent­ing the employ­ees of the company.

Who ben­e­fits from busi­ness rescue?

All affected par­ties ben­e­fit from this process. Cred­i­tors of the com­pany will receive a bet­ter return than they would ordi­nar­ily receive from the liq­ui­da­tion of the com­pany. The com­pany will con­tinue its exis­tence once the busi­ness res­cue process is com­plete, sav­ing jobs and allow­ing the entity to con­tinue trad­ing as an eco­nom­i­cally con­tribut­ing entity.

Can any com­pany be placed under busi­ness rescue?

No. Only if the com­pany is finan­cially dis­tressed and there is a rea­son­able prospect that the busi­ness may be res­cued can it file for busi­ness rescue.

Can any busi­ness entity be placed under busi­ness rescue?

No, not all busi­nesses can apply for res­cue. Only com­pa­nies may file for busi­ness res­cue. Busi­nesses oper­at­ing through trusts and sole pro­pri­etors can­not file for busi­ness rescue.

Can a close cor­po­ra­tion be placed under busi­ness rescue?

Yes, under the new Com­pa­nies Act a close cor­po­ra­tion is clas­si­fied as a company.

What is meant by finan­cial distress?

A com­pany is in finan­cial dis­tress when doubt exists over whether or not a com­pany is able to pay all its debts as and when they become due and payable within the ensu­ing six months, or it appears that it is unlikely that the com­pany will become sol­vent within six months.

When should a com­pany file for busi­ness rescue?

A com­pany should com­mence busi­ness res­cue pro­ceed­ings at the first signs of being finan­cially dis­tressed. This implies that at the first signs of dis­tress a com­pany should apply for busi­ness res­cue. Should a com­pany become “more dis­tressed” options other than busi­ness res­cue become an option such as takeovers or a liquidation.

Who may place a busi­ness in busi­ness rescue?

Any affected per­son may apply to the courts to place a com­pany into busi­ness res­cue or the direc­tors may file for vol­un­tary busi­ness res­cue pro­vided in each case the com­pany is finan­cially dis­tressed and there is a rea­son­able prospect that the busi­ness may be rescued.

How a com­pany is legally clas­si­fied in terms of its size?

A com­pany may be clas­si­fied as a small, medium or large com­pany based on its pub­lic inter­est score. This also defines the cat­e­gory of busi­ness res­cue prac­ti­tioner that qual­i­fies to con­duct the busi­ness rescue.

What is a pub­lic inter­est score?

A pub­lic inter­est score is a cal­cu­la­tion to deter­mine the size of a com­pany at the end of each finan­cial year. Com­pa­nies with a pub­lic inter­est score of less than 100 are clas­si­fied as small com­pa­nies. Com­pa­nies with a score of between 100 and 500 are clas­si­fied as medium com­pa­nies whilst large com­pa­nies have a score in excess of 500. State owned or pub­lic com­pa­nies with a pub­lic inter­est score of less than 500 are clas­si­fied as medium sized companies.

How is the pub­lic inter­est score calculated?

A pub­lic inter­est score is cal­cu­lated at the end of the finan­cial year of a com­pany as follows;

  • One point equal to the aver­age employ­ees employed dur­ing the year;
  • One point for every R 1 mil­lion or part thereof of third party liability;
  • One point for every R 1 mil­lion of turnover or part thereof;
  • One point for each shareholder;

The total of all the points is then the cal­cu­lated pub­lic inter­est score.

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