Business debt rescue is a legal process with the purpose of saving a business in financial distress. Temporary management and supervision of the business are in place to put the business back on track and lead it back to a solvent state.
If one thus looks at the question of how debt rescue works in terms of a business, then it is about the prevention of the liquidation of the business assets. Indeed, creditors lose money when a business that owes them money is liquidated. With that in mind, creditors are rather willing to stay the debt of the company under rescue because it is possible to rehabilitate the business. A solvent business is in a position of being able to pay back the money owed to the creditors. The saved entity can thus stay a client and provide supplier services to other companies and individuals.
HOW DOES IT WORK IN RELATION TO MANAGEMENT?
A business rescue practitioner is appointed to supervise the business and its management. The debt of the company is only temporary stayed, giving the company time to restructure and minimise the risk of large-scale job losses. A plan is put in place to ensure the optimal restructuring of its assets, liabilities, and equities.
WHAT IS THE TEST FOR THE PROCESS?
The company must be unable to pay back the money over the next few months and must be in a state of financial distress. It must seem likely that the business will become solvent within six months from the start of the process.
HOW DOES THE PROCESS WORK IN TERMS OF AFFECTED PERSONS?
Affected persons are the key stakeholders, creditors, employees or the employee representatives, and shareholders affected by the process. Creditors, for instance, benefit by the process in so much as being paid more of the money owed than would be the case had the business been liquidated.
WHEN IS BUSINESS IT APPLIED?
It is recommended when a business can be saved. It is possible for the business to be so financially distressed that even with considerable restructuring and the temporary stay of debt, it cannot be brought back to a solvent state. It is recommended when it is in the public interest for a company to stay afloat. A moratorium is placed on liquidation procedures in order to complete the process.
WHAT HAPPENS IF IT FAILS?
It is possible, regardless of how well the plan is executed that the business simply cannot become solvent again. This may be due to external factors affecting the viability of the service or product offering of the company. In this instance, an application for liquidation is then brought by the creditors, employees, or stakeholders in the company. The practitioner must notify the court if there is no reasonable way that the company can be rescued.
WHERE CAN ONE LEARN MORE ABOUT HOW THE PROCESS DOES WORK?
Get in touch with our attorneys for more information and help in initiating business debt rescue or liquidation in South Africa.
Disclaimer: This article is for information purposes only and does not constitute legal advice. Call on our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing.