In terms of the Companies Act, Boards are required to monitor and manage risk. This includes evaluating whether or not an organisation is a “going concern” and able to meet its obligations as and when they fall due.
If questions arise around the liquidity of the business; that is, there is uncertainty as to whether or not the organisation will be able to pay its debts as they fall due within the next 6 months; the Board is obliged to consider placing the company into business rescue.
Definition
Business rescue is defined by the Companies Act as follows:
Proceedings to facilitate the rehabilitation of a company that is financially distressed.
Objectives
The three key objectives of Business rescue are:
1. Implementing the temporary supervision and management of a company by a business rescue practitioner – either appointed by the Board or after an application to the court by shareholders, creditors or employees
2. Introducing a temporary moratorium on the rights of claimants against the property of the company and providing the organisation with time to resolve its under-performance. Labour contracts continue to be subject to the Labour Relations Act
3. Developing and implementing in consultation with creditors and other affected parties, a business rescue plan that will, ideally, rescue the company or, alternatively, will achieve a better result for creditors and shareholders than would be the case in liquidation.
The Process
In some cases the Board may resolve to voluntarily begin business rescue proceedings and appoint a business rescue practitioner. Alternatively, any shareholder, creditor or employee (“affected person”) can make an application to the court to place the company into business rescue. The court may then appoint an interim practitioner nominated by an affected person (subject to ratification at the first creditors’ meeting.)
The business rescue practitioner effectively takes over the management of the company and all litigation against the company is suspended. The business rescue practitioner is empowered to renegotiate certain contracts if necessary, however, labour contracts are not affected.
The practitioner is further required to develop and implement a business rescue plan in consultation with all the affected parties. This plan must be approved by the majority of creditors and must demonstrate that the business can be rehabilitated.
The process ends once the business rescue practitioner has filed a notice confirming that the business rescue plan has been substantially implemented. Alternatively, the court may convert the business rescue proceedings to liquidation proceedings.
Services
Although it is a bold and difficult step for a company to claim financial distress, it can be the beginning of a complete turn-around. At Palmer Business Concepts, we commit to taking that leap with you.
We can execute the role of a business rescue practitioner or alternatively, advise the board on the strategic options available to your Company and deliver feedback on the implementation of strategic plans. We can also provide assistance to the financial teams who often require help in providing accurate and timeous information during these distressed times.
