The devastating economic impact of Covid-19 and the SA national lockdown has adversely impacted many businesses across South Africa, and an end is not yet in sight. There has been extensive news coverage of businesses in Business Rescue, including SAA, Comair and Edcon. If you are a business owner or occupy an executive role in business, do you understand the meaning of “Business Rescue” and how it applies to you and/or your business? In this blog, we explain the concept and touch on implications for certain stakeholders potentially impacted by a rescue process.
The Companies Act 71 of 2008 provides for the efficient rescue and recovery of companies in financial distress, in a manner that balances the rights and interests of all relevant stakeholders. The Act allows such companies to reorganise and restructure their businesses to facilitate such businesses returning to a sustainable position.
A company is in “financial distress” when…
The Act defines financial distress as being applicable when a company:
At the first sign of either distress signal becoming evident, the company should be placed into business rescue. The rescue process should not endure beyond a period of 3 months and, with the assistance of a business rescue practitioner, a plan would be constructed to either return the company to commercial insolvency or formalize commencement of liquidation proceedings, should commercial insolvency be impossible.
It should be noted, however, that a financially distressed company should only be placed in business rescue provided funds are available for future trading and the underlying business is economically viable.
On the business
Before commencing on a business rescue process, it is important to understand how your business could be impacted by this decision and equally if your company serves another suspected of entering rescue proceedings. Whereas your rights are determined by legislation, there are practical considerations.
If business rescue is on your horizon, although the MMS Group does not serve in a practitioner capacity in business rescue matters, our Management Consulting team can assist you in making the decision that will best serve the interests of you as an affected party. Reach our team through our website
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