Effects of Business Rescue


Legal action against the company during business rescue.

No legal proceedings including an enforcement action, against the company or its assets may commence or proceed unless;

  • The practitioner has consented to this in writing;
  • The court has given leave to this;
  • The claim is in terms of a set off made by the company in legal proceedings whether it is before or after the business  rescue date;
  • The action is a criminal proceeding against the company, its directors or officers;
  • The claim is against any property or right over which the company acts as a trustee;
  • The proceedings are by a regulatory authority in the execution of its duties and it has notified the practitioner in writing;

The effect of business rescue on shareholders.

During business rescue proceedings any change in in the classification or status of issued securities of a company other than by way of ordinary course of business is invalid except if the court or the business rescue plan directs otherwise. 

Securities are shares, debentures, or other instruments irrespective of their form of title, issued or authorised to be issued by a profit company.

The effect of business rescue on employees.

During business rescue proceedings employees will continued to be employed under the same terms and conditions that applied prior to business rescue, except when;

  • Changes occur in the ordinary course of attrition;
  • Employees agree to different terms and conditions in accordance with labour laws;
  • Any retrenchments contemplated are done in compliance with labour laws;

A business rescue practitioner may not suspend an employment contract for the duration of the business rescue proceedings.

Schemes for the benefit of employees, past and present, is an unsecured creditor to the extent that the amounts due are immediately before the beginning of business rescue proceedings, and in the case of a defined benefit fund, the present value of an unfunded liability at the commencement of business rescue proceedings.

The effect of business rescue on directors.

The directors of the company remain directors of the company but their powers and duties are constricted in that the business rescue practitioner has full management control of the company in substitution for its board and pre-existing management. 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 effect of business rescue on contracts.

Existing contracts remain in force under business rescue proceedings, but the business rescue practitioner may entirely, partially or conditionally suspend an agreement for the duration of the business rescue proceedings. The practitioner may also apply to court to entirely, partially or conditionally cancel any terms that are just and reasonable in the circumstances. Any party to an agreement that has been suspended or cancelled has a claim against the company for damages only.

What is the effect of business rescue if I am using assets of the company?

If any property of the company under business rescue is in the possession of a third party as a result of a contract entered into before business rescue they may retain it.  

What is the effect of business rescue if the company under rescue is using my assets in terms of a contract?

Any person that wants to exercise any right over property or an asset in the possession of the company can only do so with the written consent of the business rescue practitioner and the practitioner must not unreasonably withhold the requests of that person.

The effect of suretyships and guarantees under business rescue.

During business rescue proceedings a guarantee or suretyship by a company or person may not be enforced against the company in business rescue, except for with the leave of the court.

A business rescue plan.

A business rescue plan once implemented may provide that a creditor has agreed to the discharge of the whole or a portion of the debt owing and the creditor will then lose the right to enforce the relevant debt or part thereof against the company.

Furthermore a creditor is not entitled to enforce any debt owed by the company immediately before business rescue unless it is provided for in the plan.