The timelines for getting started with business rescue proceedings

13 May 2020,  Candice Reynders 913
In the event that the board of directors of a company reasonably believe that a company is financially distressed and that there is a reasonable prospect that the company can be rescued if placed under business rescue, the directors of the company may resolve to initiate business rescue proceedings. This is known a voluntary business rescue as opposed to compulsory business rescue under a court order.

The board of directors will accordingly convene and resolve to commence with business rescue proceedings and place the company under supervision in terms of section 129 of the Companies Act 71 of 2008 (the “Act”).

There are two important aspects which need to be kept in mind when the board is contemplating placing the company under business rescue. These aspects include the following:
 
  1. A resolution to commence with business rescue proceedings may not be adopted by the board of directors in the event that liquidation proceedings have already been initiated by or against the company.
  2. A resolution to commence with business rescue proceedings has no force or effect until it has been filed with the Companies and Intellectual Property Commission (the “CIPC”).
Once the resolution to voluntarily commence with business rescue proceedings has been adopted and filed with the CIPC, the process has commenced and the company has to comply with the timelines prescribed by the Act.

A short overview of the preliminary timelines for the commencement of business rescue can be summarised as follows:

  1. Within 5 (FIVE) business days after the adoption and filing of the resolution to commence with business rescue proceedings, all affected persons (such as the shareholders, creditors and employees of the company) must be notified in writing.
  2. Within 5 (FIVE) business days after the adoption and filing of the resolution to commence with business rescue proceedings, the company must appoint a business rescue practitioner. Although the business rescue practitioner only needs to be formally appointed after the resolution by the board of the directors has been adopted and filed, we would advise that the business rescue practitioner be involved in the process from the beginning and assist in the assessment whether the company meets the initial requirements for business rescue.
  3. Within 2 (TWO) business days following the appointment of the business rescue practitioner by the company, the company must file a notice of the appointment with the CIPC.
  4. Within 5 (FIVE) business days after the notice of appointment of the business rescue practitioner was filed with the CIPC, all affected persons must be notified of the appointment of the business rescue practitioner in writing.
In the event that the company fails to comply with the preliminary timelines as contemplated above, it will have the following adverse consequences:

  1. The resolution of the board of directors to commence with business rescue proceedings and place the company under supervision lapses and is of no force and effect.
  2. The company will not be allowed to file a further resolution for the adoption of business rescue proceedings with the CIPC for a period of 3 (THREE) months.
It is of utmost importance that the business rescue timelines are adhered to ensure an effective rescue. Contact a business rescue practitioner today to ensure that your business rescue proceedings are not compromised due to no non-compliance with the prescribed timeframes.

Stay tuned for our next blog post where we will discuss the effect of placing your company under business rescue.

*By Candice Reynders and Linki Scholtz
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