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Business rescue proceedings under the new Companies Act:
a one year review
BackgroundEven before the new Companies Act of 2008 came into effect on 1 May 2011, the new business rescue proceedings contained in Chapter 6 of the Act generated a lot of interest. There were high expectations that South African corporations in financial distress would at last be provided with a workable and effective rescue procedure that would be more successful than its predecessor, judicial management.
In the period since the Act has came into effect, close to 500 companies have been placed under business rescue and a number of them have already been successfully rescued. It was to be expected that there would be some difficulties in the interpretation and practical application of the provisions of the Act in the beginning, and some of them were almost unavoidable due to bad drafting, unclear or confusing terminology and seemingly conflicting provisions. However, many problems that arose as more and more companies and close corporations started using (and, in some instances, abusing) the business rescue proceedings were not foreseen and exposed other weaknesses and omissions in the Act. Although a number of court judgments have started to address some of the issues other questions remain unresolved.
- a detailed analysis of the provisions of the Companies Act regulating business rescue proceedings
- guidance on the interpretation of problematic and unclear provisions
- an exposition of the rights and duties of directors, creditors, shareholders and employees of the company during business rescue proceedings and their relationship with the business rescue practitioner
- an explanation of the current situation regarding the licensing of business rescue practitioners
- an analysis of High Court judgments on business rescue proceedings so far
Frequently asked questionsThe following questions are discussed:
- Are the directors of a company in financial distress compelled to commence business rescue proceedings and what are the risks if they do not?
- May the directors take a business rescue resolution but refrain from filing it until a liquidation application is launched?
- Is a rescue resolution automatically void if the requirements of section 129 are not satisfied?
- How much information on the proposed rescue plan must be furnished to the court in an application for a business rescue order?
- Which creditors may vote on the business rescue plan and do they first have to formally prove their claims before they are allowed to vote?
- What is the effect of business recue proceedings on pre-existing contracts of the company such as leases, franchise agreements and security provided by the company for its debts, and on sureties and guarantors of the company's debts?
- What are the rights, powers and duties of the directors and the business rescue practitioner during business rescue and what options are available if the board does not agree with the approach or rescue plan of the practitioner?
- Who qualifies for appointment as a business rescue practitioner and how do you get licensed as one?
- What happens if the business rescue plan is rejected?
- Which creditors are bound to an approved business rescue plan?
- How and when do the business rescue proceedings end?
Compiled by prof Anneli LoubserProf Anneli Loubser is the subject supervisor of corporate law in the Department of Mercantile Law at the University of South Africa. She holds the degrees BA (Law) and LLB from the University of Pretoria and an LLM (Corporate Law) and LLD from the University of South Africa. Her doctoral thesis specifically dealt with the new business rescue proceedings and she has published several research articles on the topic of business rescue. She is also an admitted attorney, notary and conveyancer and spent several years in private practice before joining UNISA.
She is a member of the Education Subcommittee of the Turnaround Management Association of Southern Africa (TMA-SA). She is also a member of the Litigation Committee of the Financial Services Board of South Africa and she was a member of the Subcommittee on Business Rescue of the 3rd King Committee on Corporate Governance.
Anneli is a developer and presenter of the Advanced Short Course in Business Rescue Practice offered by the Law Society of South Africa and L.E.A.D. in conjunction with the University of South Africa, and of the Advanced Corporate Law and Securities Law Programme offered by the Centre for Business Law at UNISA. She also teaches two modules in Corporate Governance and Legislation offered by Centre for Business Management at UNISA. Anneli presented seminars on the new Companies Act of 2008 on behalf of L.E.A.D. and the LSSA in 17 different locations across South Africa during 2010 and 2011 and therefore has a thorough knowledge of the whole Act. She has also presented several lectures and seminars specifically on the business rescue proceedings.
Anneli was the author of four chapters in the most recent edition of Mars: The Law of Insolvency in South Africa (9th ed, Juta, 2008) and wrote the chapter on business rescue in Companies and other Business Structures in South Africa, which was the first textbook to be published on the Companies Act of 2008. She is the author of the chapter on South African corporate rescue in Corporate Rescue: An Overview of Recent Developments by K.G. Broc and R. Parry (eds) (2 ed, Kluwer Law International, Netherlands, 2006) and of the chapter entitled "Defining the Unincorporated Business in Financial Distress" in The Future of Consumer Credit Regulation by Michelle Kelly-Louw, James P Nehf and Peter Rott (eds) (2008, Ashgate). She has published articles in national and international law journals and has also presented several papers at national and international conferences.