Business Rescue FAQ

Wanting to stop a business rescue?

Business rescue proceedings are brought about to facilitate the rehabilitation of a company that is financially distressed and the proceedings offer a very useful alternative to the liquidation of a company. So you should be careful to ensure that you have good grounds to set aside the proceedings.

Some of the reasons reported for setting aside the resolution to commence Business rescue proceedings are:

The resolution putting the Business rescue into motion, was not considered or adopted correctly;

The Business rescue plan contemplated by the Act, has not been adopted within the time frame set out in the Act;

The Business rescue practitioners are not qualified to perform their duties (skills deficit);

The Business Rescue practitioners have failed to implement the plan as adopted;

The Business rescue practitioners are running the company into the ground, failing to file for termination where there is clear evidence the company cannot be rescued.

At what stage can you stop a business rescue?

To stop a business rescue from starting or completing, you should act early. Any affected person opposing a business rescue may either request the court to dismiss the application together with any other appropriate order, including an order placing the company under liquidation.

If the business rescue process was already confirmed by a court order in terms of s 130 or initiated by an application to the court in terms of s 131, an affected party may apply to the court for an order setting aside the resolution to commence Business rescue proceedings.

It is also the obligation of the business rescue practitioner to file for liquidation once it becomes evident that the company cannot be rescued.

You may also therefore consider whether there was any onus on the Business rescue practitioner to file for termination of the Business rescue proceedings.

You may have another action for personal liability against him or her.

What an affected person who wants to stop business rescue proceedings must do?

Business rescue proceedings are brought about to facilitate the rehabilitation of a company that is financially distressed.

The proceedings offer a very useful alternative to the liquidation of a company and an affected party should be very careful to ensure that they have solid grounds to set aside the proceedings.

Some of the reasons reported for setting aside the resolution to commence Business rescue proceedings are:

• The resolution putting the Business rescue into motion, was not considered or adopted correctly;
• The Business rescue plan contemplated by the Act, has not been adopted within the time frame set out in the Act;
• The Business rescue practitioners are not qualified to perform their duties (skills deficit);
• The Business Rescue practitioners have failed to implement the plan as adopted;
• The Business rescue practitioners are running the company into the ground, failing to file for termination where there is clear evidence the company cannot be rescued.

Terminating the appointment of the Business rescue practitioner, not the proceedings

Upon request of an affected person, or on its own motion, the court may remove a practitioner from office on any of the following grounds:

(a) Incompetence or failure to perform the duties of a business rescue practitioner of the particular company;

(b) failure to exercise the proper degree of care in the performance of the practitioner’s functions;

(c) engaging in illegal acts or conduct;

(d) if the practitioner no longer satisfies the requirements set out in section 138(1);

(e) conflict of interest or lack of independence; or

(f) the practitioner is incapacitated and unable to perform the functions of that office, and is unlikely to regain that capacity within a reasonable time

Your locus standi (the sufficiency and directness of a litigant’s interest in proceedings) in relation to the company under rescue

The Business rescue practitioner must consult with affected persons and the company’s Management to investigate the business affairs and financial position of the company in order to determine whether there is a reasonable prospect of rescuing the company.

As a creditor you should be mindful of the fact that you would have been given the opportunity to vote on the business rescue plan.

A business rescue plan must be voted on and accepted by 75% of the creditors’ voting interests and 50% of the independent creditors’ voting interests, which were voted. If adopted, the plan binds the company, its creditors and holder of securities.

Business Rescue proceedings has far reaching effects on creditors, financial institutions, shareholders, employees and restructuring specialists so you should get onboard and attend meetings to vote and take an interest in what money may be due to you in terms of any contract (employment, supplier, distributor, lease, property and equipment and the like)

A director of a company who voted in favour of a resolution to commence Business rescue proceedings may not apply to a court in terms of Section 130 to set aside the resolution or the Business rescue practitioner appointed, unless he/she can satisfy the court that in supporting the resolution, he/ she acted in good faith on the basis of false or misleading information.

Shackleton Risk Management in association with Genoa Underwriting Managers created a country first Professional Indemnity (PI) and Fidelity Guarantee (FG) insurance products for:

• Business Rescue,
• Section 155 Compromise,
• Interim Managerial appointments and
• Informal restructuring

Contact us to get a quotation for your next appointment, or to simply request more information.