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.