Covid-19, financial distress and business rescue: Can I save my company?
21 April 2020  | Damian Viviers | Views: 849
As indicated in my previous posts, the adverse economic effects of the Covid-19 pandemic, the initial and now extended national lockdown and the global recession are being experienced by most businesses across all sectors in South Africa. As a result, many otherwise successful and profitable businesses are experiencing varying degrees of financial pressure and distress.

One feasible option that companies who are experiencing financial distress may consider, is engaging in business rescue proceedings. It may be highlighted that business rescue is not designed for insolvent companies that have no choice but to close their doors. This option is specifically designed, in terms of the Companies Act 71 of 2008, for businesses that are going through a difficult time financially, in order to assist them to stay in business whilst weathering the storm.

The business rescue option introduced by the Companies Act aims to assist companies in financial distress, irrespective of the reason for such distress. Such businesses are afforded, using this option, an opportunity to reorganise and restructure, but more importantly, to come to satisfactory arrangements with creditors (or any person or entity to whom contractual and other obligations are due) with the aim of ensuring that the business successfully navigates through the storm without depleting all cash outside the business in the shareholders’ hands, and without the business drowning in further debt in order to finance the business during the time of distress. Although the term ‘business rescue’ may be associated as a precursor to liquidation, it is in fact a simple and effective option, not requiring court proceedings, to enable a business to rehabilitate.
Business rescue proceedings aim to facilitate the rehabilitation of a company by providing for the following:

  • The temporary supervision of the company, and the management of its affairs, business and property, by a specialist business rescue practitioner.
  • A temporary suspension of the rights of creditors and other claimants against the company and its property.
  • The development and implementation of a business rescue plan which facilitates the restructuring of the company’s business, property, debt, other liabilities and equity, in order to ensure that the company makes its through its time of financial distress.
The question arises as to who is a business rescue practitioner? This is a person registered with the Companies and Intellectual Property Commission as such, and is appointed to oversee a financially distressed company during business rescue and draw up a business rescue plan for the company, in line with its unique circumstances.

Engaging in business rescue proceedings has a significant impact on the creditors, shareholders, employees and third-party financial institutions involved with a company. It is therefore essential that a business rescue practitioner with sufficient qualifications, knowledge and experience is appointed to assist the company in this regard. A skilled and experienced business rescue practitioner and a good business rescue plan will go a long way in rehabilitating a company that is currently financially distressed.

Keep an eye on our posts for more information regarding when a company will be eligible to engage the business rescue process.