Business rescue, as defined by Chapter 6 of the Companies Act 2008, aims to facilitate the rehabilitation of a company that is “financially distressed” by providing for
- the temporary supervision of the company and management of its affairs, business and property by a business rescue practitioner, and
- a temporary moratorium (“stay”) on activities carried out by the company as well as enforcement proceedings brought against the company (without the consent of the BRP).
Essentially, business rescue acts as a crucial support system for companies facing financial difficulties, providing them with an organised route to recovery and protecting their operations during a critical phase. It is a proactive and legally required strategy to deal with financial obstacles, with the ultimate goal of restoring the company’s financial stability and avoiding insolvency.
Who Can Apply for Business Rescue?
Any financially distressed company, as defined in Chapter 6 of the Companies Act 71 of 2008 in South Africa, can apply for business rescue. The application can be made by the board of directors, a shareholder, or any affected person with a sufficient interest in the company’s financial well-being.
How Can Business Rescue Be Initiated ?
- By the board of directors of the company
- By an application to court when the business is financially distressed by various affected persons (including shareholders, creditors, registered trade unions and employees).
The choice between these options often depends on the specific circumstances and the willingness of the company’s leadership and stakeholders to collaborate in achieving a successful outcome.
What Is The Function Of The BRP?
A business rescue practitioner is appointed to oversee and supervise on a temporary basis the management, affairs and business of the company and to devise, prepare, develop and implement a business rescue plan. The plan will be implemented if approved by creditors and shareholders who have to vote on the plan.
Do the Directors of an Entity Under BR Have Any Residual Capacity or Authority?
Regarding the roles and responsibilities of each director of the company in a BR scenario, the following principles apply:
- Continued Exercise of Director Functions: Each director of the company will retain the ability to exercise their directorial functions, but this exercise will be subject to the authority and oversight of the duly appointed business rescue practitioner.
- Assistance to the Practitioner: It is mandatory for each director to actively assist the business rescue practitioner. Their role involves supporting and collaborating with the practitioner in the operation of the company and the continuation of its business activities.
- Delegation of Powers: Directors have the flexibility to delegate any of their powers or functions to the duly appointed business rescue practitioner. The practitioner, in this capacity, assumes full management control of the company.
Jacqui Smith (LLB)
Business Rescue is a lifeline for struggling companies. Whether initiated by directors or concerned stakeholders, it offers a chance at revival. Shackleton Risk Management not only provides insights into this critical process but also offers essential support with professional indemnity insurance for business rescue practitioners. If you want to learn more, contact us today.
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