By now you would have heard the term “business rescue”. Chapter 6 of the new Companies Act, 2008 introduced business rescue as a legal mechanism to turnaround South Africa companies in “financial distress” or trading in insolvent circumstances. The Act sets out that this process should be opted for at the first sign of financial distress, that is when it is reasonably unlikely that a company will be able to pay its debts when they fall due for payment in the immediately ensuing 6 months or when it is likely that the company will become insolvent in the immediately ensuing 6 months.
Once placed in business rescue, a suitably qualified business rescue practitioner is appointed to reorganise and restructure the company with the aim of returning it to a more stable and profitable entity. Such restructuring can take anywhere from 3 to 12 months depending on the size of the company and complexity of the rescue proceedings.
The business rescue practitioner may subcontract service providers to the company in rescue.
At Shackleton Risk we recognize that the business rescue practitioner like any other professional in specialized field giving advice requires professional indemnity insurance which provides protection against financial loss to a third party (such as a director, shareholder or aggrieved creditor) arising from any grossly negligent advice or conduct by the business rescue practitioner in the form of an act or omission.
Having business rescue insurance gives directors, shareholders and creditors peace of mind that in the event that a business rescue practitioner (in the exercise of the powers and performance of the functions of a practitioner) conducts the affairs of the company in a reckless manner with gross negligence, or with intent to defraud any person giving rise to harmful outcomes and losses for them, the business rescue practitioner and thus his professional indemnity insurer will be liable to compensate them for such losses.
At Shackleton Risk we don’t just insure the practitioner, we insure the company in rescue (where FG cover has been selected) for direct financial losses sustained by the company in rescue as a result of fraud or dishonesty of the Business Rescue Practitioner or subcontractor who committed the fraud or dishonesty as the case may be. T’s and C’s apply.