Insolvency and Liquidation

 

 

 

As an "affected person" (like a creditor or employee), you have the right to oppose a Business Rescue application if you believe it's not justified.  Here's how:

  • Act Quickly - Urgency is Key: Business Rescue applications are typically treated as urgent by the courts, so time is limited.
  • Formal Opposition Process: You oppose in the same way you'd oppose any court application: * Notice of Intention to Oppose: File and serve a formal notice stating you will oppose the application. * Answering Affidavit: File and serve an "answering affidavit" – your sworn statement outlining your reasons for opposing and presenting your evidence. You'll need to do this within the timeframes specified in the initial application documents.
  • Desired Outcome: In your opposition, you can ask the court to: * Dismiss the Business Rescue Application: Stop the Business Rescue process entirely. * Order Liquidation: Request that the company be placed directly into liquidation instead of Business Rescue.

The business rescue process is intended to be completed within three months. However, it can be extended with the consent of creditors or a court order.
 

In voluntary Business Rescue, strict timelines must be followed after the board of directors passes a resolution to commence proceedings.  If these deadlines are missed, serious consequences follow:

  • Automatic Resolution Lapse: The initial resolution to begin voluntary Business Rescue becomes invalid ("lapses and is a nullity"). It's as if the resolution never happened.
  • Three-Month Waiting Period: The company is barred from initiating voluntary Business Rescue again for three months from the date of the failed resolution. The only exception is if a court grants special permission to file sooner, based on "good cause."
  • Legal Challenge by Affected Persons: "Affected persons" (like creditors or employees) can go to court to formally challenge and invalidate the resolution if the company hasn't followed the correct procedures and timelines.

If the business rescue is successful, the company will be returned to its management and continue operating. The business rescue plan will guide its future operations and financial management.
 

If the business rescue is unsuccessful, the company may be placed into liquidation. This means its assets will be sold off to pay creditors, and the company will cease to exist.

Show all FAQs in Category

Business Rescue 

Facing financial headwinds threatening your South African company? Liquidation isn't the only answer. Business Rescue offers a powerful legal pathway to restructure, rehabilitate, and restore your business to solvency. AUCAMP Attorneys are experienced Business Rescue practitioners ready to guide you through this critical process.
 

What is Business Rescue in South Africa?

Business Rescue is a legal process designed to give financially distressed companies a second chance. Instead of immediate liquidation, it provides a framework to rehabilitate the business.  A Business Rescue Practitioner temporarily supervises the company, working to restructure its finances, operations, and debts. The goal is to develop and implement a plan that maximizes the likelihood of the company returning to solvency and continuing as a viable business.  Think of it as a structured intervention aimed at rescuing a company from the brink of collapse and restoring its long-term health.

Test for Business Rescue:  Is Your Company Financially Distressed and Rescuable?

For a company to qualify for Business Rescue in South Africa, it must meet two key criteria: Financial Distress and demonstrate Reasonable Prospects of Success.

1. The Financial Distress Test: A Forward-Looking Assessment
South African law defines "financially distressed" using a forward-looking, six-month test.  A company is considered financially distressed if, within the next six months, it is likely to face either:

  • Commercial Insolvency (Inability to Pay Debts) This means the company will be unable to meet its financial obligations as they fall due. Essentially, can you pay your bills on time?
  • Balance Sheet Insolvency (Liabilities Exceeding Assets) This occurs when the total value of the company's debts surpasses the total value of its assets.

2. The Reasonable Prospects of Success Test: Demonstrating Rescuability
Beyond financial distress, Business Rescue requires showing that the company can actually be rescued.  This means demonstrating "reasonable prospects of success."  To satisfy this test, you must present:

  • Clear Identification of Problems Explain the root causes of the company's financial distress. What went wrong?
  • A Credible and Workable Solution Propose a specific and practical plan (the "remedy") to address these problems and return the company to solvency.
  • Evidence-Based Justification Support your proposed solution with objective, verifiable facts. Vague hopes or speculation are insufficient. You need to show a realistic pathway to recovery.

 

Proactive consideration of Business Rescue is vital when you observe these signs:

  • Six-Month Debt Payment Concerns If you anticipate difficulty paying debts within the next six months.
  • Six-Month Insolvency Concerns If you foresee liabilities exceeding assets within six months.
  • Severe Cash Flow Problems Consistent struggles to manage day-to-day cash flow.
  • Overwhelming Debt Burden Unmanageable levels of debt obligations.

Seek Professional Advice Early

Directors facing financial distress often experience pressure and uncertainty.  Seeking timely legal and professional guidance is crucial.  Contact AUCAMP Attorneys for expert advice and to explore whether Business Rescue is the right path for your company. Early action can significantly improve the chances of a successful business rescue.

Entering Business Rescue: Two Pathways to Financial Rehabilitation

In South Africa, there are two distinct ways a company can formally begin Business Rescue proceedings, each with its own process: Voluntary Commencement and Involuntary Commencement.  Understanding these pathways is crucial for companies facing financial distress.

1. Voluntary Business Rescue: Taking Control

  • Initiated by the Company Voluntary Business Rescue starts when the company's own board of directors decides to act.
  • Board Resolution Required The board must pass a resolution, believing two key things: The company is "financially distressed" (meeting the tests we discussed earlier). There is a "reasonable prospect" of rescuing the company.
  • Speed and Efficiency Voluntary commencement is generally a faster and more controlled process as it's driven from within the company.
  • Key Steps: Resolution & Filing: Within 5 business days of passing the resolution and filing it with the Companies and Intellectual Property Commission (CIPC), the company must notify all "affected persons" and appoint a Business Rescue Practitioner (BRP). BRP Appointment Notice: Within 2 business days of appointing the BRP, notice of this appointment must be filed with CIPC and, within 5 business days of filing, sent to all "affected persons." Strict Deadlines: Failure to meet these deadlines can cause the resolution to lapse, preventing further voluntary action for three months (unless a court intervenes).

2. Involuntary Business Rescue:  Initiated by Affected Parties

  • Driven by "Affected Persons": If a company doesn't initiate voluntary rescue, certain "affected persons" can apply to court to place the company under Business Rescue.
  • Who are "Affected Persons"? This includes: Creditors (those owed money by the company) Shareholders Registered Trade Unions representing employees  Employees not represented by a union
  • Court Application Process: An "affected person" must apply to court, serving the application on the company and CIPC, and notifying other "affected persons."
  • Court's Decision: The court will consider the application and may grant it if it believes: The company is financially distressed. The company has failed to pay a debt obligation. It is "just and equitable" to grant Business Rescue. *Crucially, the court must also be convinced there's a "reasonable prospect" of rescuing the company.
  • Post-Order Notification: If the court grants the order, the company must notify all "affected persons" within 5 business days.

Which Path is Right for Your Company?

The choice between voluntary and involuntary Business Rescue depends on your company's specific circumstances.  Voluntary commencement offers more control, but may not be possible if directors are hesitant or if "affected persons" believe court intervention is necessary.

What Happens Upon Commencement?

Once Business Rescue Proceedings commence, regardless of the pathway:

  • Business Rescue Practitioner (BRP) Takes Over A qualified BRP is appointed to take temporary control of the company's management and affairs.
  • Moratorium on Legal Actions A legal "standstill" is imposed, preventing creditors from taking legal action against the company to recover debts. This provides essential protection for the company to restructure.
  • Rescue Plan Development The BRP, in consultation with stakeholders, begins developing a Business Rescue Plan aimed at restructuring the company's debts, operations, and finances to improve its prospects of survival.

Need Guidance? Contact AUCAMP Attorneys

Navigating the commencement of Business Rescue can be complex.  AUCAMP Attorneys can advise you on the best approach for your company, whether voluntary or involuntary, and guide you through every step of the process.  Contact us today for expert legal assistance.