business rescue proceedings lifeline

Business rescue has become a popular alternative to liquidation of a company. The Business Rescue procedure was introduced through section 6 of The Companies Act 71 of 2008 (“Companies Act”). One of the principal differences between the two is that, while under the supervision of the business rescue practitioner, the company continues to trade.


Business Rescue is the proceedings to rescue and rehabilitate a financially distressed company.


Such rehabilitation involves the development and implementation of a business rescue plan which provides for the restructuring of the company’s affairs, business, property, debt, other liabilities and equity in such a matter that maximises the likelihood of the company to be able to continue existing on a solvent basis.


If it is determined that it is not possible for the company to continue to exist on a solvent basis, the business rescue plan must be formulated in a way to provide a better return for the company’s creditors and/or shareholders, in order to avoid the immediate liquidation of the company.


Section 128 (1) of the Company’s Act 71 of 2008 (The Act) defines business rescue as:
” proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for;


  1. The temporary supervision of the company, and of the management of its affairs, business and property;
  2. A temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and
  • The development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company;”


and the term financially distressed means that:


  1. It appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months; or
  2. It appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months.”


The procedure to commence business rescue proceedings is through a resolution by the board of directors. This will happen when the board of directors has reasonable grounds to belief that the company is financially distressed and that there appears a reasonable prospect that the company may be rescued. The board may then take a formal decision to place the company under business rescue. If liquidation proceedings have commenced a business rescue resolution cannot be adopted. The business rescue resolution becomes effective as soon as it has been filed by the Companies and Intellectual Property Commission (the Commission).

Business rescue can also commence when an order of court has been granted. In this case an affected person may apply to court for the company to be placed under business rescue.

An “affected person”, in relation to a company, could be any of the following people:

  1. A shareholder or creditor of the company;
  2. Any registered trade union representing employees of the company; and
  3. If any of the employees of the company are not represented by a registered trade union, each of those employees or their respective representatives;”




The primary objective with business rescue provisions is to save the company as a going concern. If this is not possible, then the secondary object or goal is to restructure the company in such a way that shareholders and creditors will still get a return on their investments, which is better than the return that they would have received should the company be liquidated.


Commencement of the proceedings


A company has to be ‘financially distressed’ before business rescue proceedings can commence.

There are three stages during the business rescue process:


  1. The temporary supervision of the company’s affairs
  2. The temporary moratorium on claims and proceedings against the company
  • The development and the implementation of a business rescue plan.


Business rescue proceedings are commenced in one of two ways:


By way of a voluntary board resolution, with a majority vote. The can be done if the board has reasonable grounds to believe that the company is financially distressed and there appears to be a reasonable prospect of rescuing the company. The company must therefore be able to achieve the goals of a business rescue. This is dealt with in section 129(1)(a) and (b). Once the board has resolved to place a company under business rescue it is their duty to implement it. The board resolution must also be filed with the Companies and Intellectual Property Commission to be of effect. If there are reasonable grounds to believe that a company is financially distressed and the board does not take a resolution to commence with business rescue proceedings, the board has to deliver a written notice to all affected parties with the relevant reasons for not adopting a resolution (see s129(7)).


An affected person may also apply to court to set aside a resolution to commence with business rescue proceedings if there is, for example, no reasonable basis for believing that the company is financially distressed (see s130(1)(a)(i)–(iii)).


An affected person may also apply to a court at any time for an order placing the company under business rescue proceedings. This is dealt with in section 131(1). This may even be possible if the company is under liquidation proceedings. The applicant must serve a copy of the application on the company and the Companies Commission and notify each affected person in the prescribed manner (see s131(2)(a)). The relevant grounds in terms of which a court may make an order to commence with business rescue proceedings are (s131(4)(a)):

– The company is financially distressed

– The company has failed to pay over any amount in terms of an obligation under a public regulation or contract in respect of employment matters, or

– It is otherwise just and equitable to do so for financial reasons.


These grounds are therefore wider than the grounds relevant for a board resolution.


If the proceedings commenced due to a board resolution, then the actual proceedings will begin when the resolution has been filed with the Commission. If it commenced in terms of a court order, the relevant date is when the applicant applies to court.


The Business Rescue Practitioner

The business rescue practitioner supervises and advises management and has complete control of the company in the place of the board of directors (s140(1)(a)). The practitioner may be appointed by the board of directors, if commencement happened by way of a board resolution, discussed above. If proceedings commenced by way of a court order, then the court will appoint a practitioner on an interim basis. This is then subject to ratification by the holders of the majority of the independent creditors’ voting interests at the first meeting of creditors (s131(5) and 147(1)).


The practitioner needs to have the relevant professional and practical experience. The relevant qualifications are dealt with in Section 138(1)(a)–(e).


The practitioner can only be removed from office by way of a court order based on any one of six grounds (s139(2)(a)–(f)). Grounds of removal include: incompetence or failure to perform duties, failure to exercise a proper degree of care, engaging in illegal acts.


The practitioner’s remuneration can be determined by way of an agreement between the practitioner and the company or it can be determined by way of a resolution of creditors or in terms of a tariff laid down in statute (s143(1)). A practitioner may also negotiate an additional contingency fee.


The Business Rescue Plan

The ultimate function of the practitioner is to prepare a business rescue plan. The plan has to be divided into three parts. Part A deals with the background, Part B with the proposals and Part C with the assumptions and conditions (s 150(2)).


Part A must at least include a list of all of the material assets of the company, an indication of the probable dividend that would be received by the creditors, a list of the holders of the company’s issued securities, a copy of the written agreement of the practitioner’s remuneration and a statement on whether or not the plan include any proposals informally made by a creditor of the company (s150(2)). Part B deals with the relevant proposal steps to be taken to resolve the company’s difficulties must include, inter alia, the nature and duration of the moratorium, the ongoing role of the company, the order of preference of which the proceeds of the property will be applied, the effect that the plan will have on the holders of each class of the company’s issued securities. Part C must set out the assumptions and conditions that must be fulfilled for the plan to be implemented. The effect on the plan on the employees must also be mentioned. This part will also deal with the circumstances under which the plan will come to an end and also provides the projected balance sheet as well as a statement of income and expenses for the next three years.


The practitioner must then provide a certificate that the information in the plan is accurate and correct. The plan must be published within 25 business days after the appointment of the practitioner (s150(5)).


The termination of business rescue proceedings


Business rescue proceedings will terminate when (s132(2)(a)–(c)):


  1. the court sets aside the order of resolution that commenced the proceedings
  2. the practitioner filed with the Commission a notice of termination
  3. a business rescue plan was proposed, but rejected and no affected person tried to extend the proceedings.