The restructuring of companies in financial distress is on the increase globally and, although the concept of business rescue has been in practice in many overseas jurisdictions – especially in the USA – for some time.
Chapter 6 of the new Companies Act first introduced it to the South African legal landscape. This chapter of the act allows those SA companies in “financial distress” or trading in insolvent circumstances to file for business rescue and, with the assistance of a business rescue practitioner, reorganise and restructure the business with the aim of returning it to a more stable and profitable entity. However, with business rescue a relative newcomer to the South African legal system, there is often a lack of understanding regarding both its workings and the role practitioners play in assisting an ailing company in returning to health.
A company may find itself in financial distress due to a conspiracy of circumstances which can be overcome, given time and careful management. The business rescue process can now provide the company with the opportunity needed to reorganise and restructure its affairs, and to structure a payment scheme with its creditors, whilst also saving jobs (one of the more important considerations of the act) and allowing the business to continue trading as an economically contributing entity. The act also offers a ‘moratorium’ on legal proceedings or liquidation procedures against any company that is in business rescue. This has far reaching effects on creditors, financial institutions, shareholders, employees and restructuring specialists.