CREDITORS, DON’T DISREGARD BUSINESS RESCUE SO SOON AS A WAY TO RETRIEVE YOUR MONIES.

It can be said that there has been an increase in business rescue processes in South Africa.

“Business rescue, as defined by the Companies Act 2008, aims 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 by a business rescue practitioner”.
https://m.fin24.com/Entrepreneurs/Resources/Business-rescue-explained-20150119.

One of the main purposes of business rescue is to ensure that creditors be paid out what is owed to them – albeit less than the full amount of their claim.

Although many get disheartened by the decrease in the payback of the capital amount, the proceedings are almost identical but less extreme to that of liquidation proceedings.

“Liquidation is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent meaning it cannot pay its obligations when they come due”.
https://www.investopedia.com/terms/l/liquidation.asp.

From a glance of the Companies Act, it suggests that although a business rescue plan may discharge a portion of the debt owed to concurrent creditors, it would be the same amount that one would get during the liquidation proceedings in any event. Therefore either way although you may retrieve less than the capital amount they theoretically do the same/similar jobs at the end of the day.

Section (1)(b)(iii) of the Companies Act states that a business rescue plan contemplates an outcome that would indeed be a better result for shareholders than it would have been during immediate liquidation.

However, just like many areas of law in South Africa, there has not been a real consensus by the courts whether the above can be stated as true.

In Oakdene Square Properties v Farm Bothasfontein, the Supreme Court of Appeal decided that it was not intended for the Act to promote an informal type of proceedings as a way of avoiding the consequences of liquidation.

If you are a creditor or a business owner looking for advice on business rescue and/or your options on the best returns possible for your money contact our offices on 031 003 0630 or email Charmaine@schwenninc.co.za.

 

Written by: Jessica Schwenn.