BUSINESS RESCUE & THE NEW COMPANIES ACT

Rescue mechanisms have existed in South Africa for many years through the Companies Act provisions and the process referred to as judicial management. Nevertheless, due to judicial managers having placed great emphasis on the protection of creditors only, the judicial management process has rarely been successful.

However, through the new Companies Act (expected effective date: 1 May 2011) the emphasis has now shifted to the development of the commercial process through a new regime termed, “business rescue”. This process entails the administration of the distressed company, by itself, but under the independent supervision of a “business rescue practitioner”, either appointed by the distressed company, or in certain cases by the Court. Business rescue, in terms of the legislation, will amount to proceedings 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; and the temporary moratorium on the rights of the claimants against the company.

A business rescue practitioner, who will oversee the rescue process through a business rescue plan, has the power to suspend any agreement entered into by the company that he opines is detrimental to the company’s financial well-being and recovery, apart from contracts of employment, and s35A and s35B insolvency agreements. But in order to have any contract cancelled, he will require the necessary Court approval. He is an “officer of the Court”, and to this extent the process will be Court-driven and his actions always subject to judicial assessment.

The formalization of the new business rescue provisions in the Act will hopefully result in contractual certainty and less liquidation. So, after the rather “outdated” provisions of the Companies Act 1973, a positive approach would be to view the new Companies Act 71 of 2008 and its regulations as an aid to the long-accepted practice of trying to rescue ailing companies in the commercial world.