HOW DOES DEBT RESCUE WORK IN TERMS OF A BUSINESS?
The phrase, debt rescue, has become so widely used in South Africa that it is almost obscure in meaning. Some use the words debt rescue when they refer to business rescue, whilst others use such to refer to debt review. Yet, others use it to refer to voluntary sequestration. For the purpose of this article, we answer the question of how does debt rescue work in terms of a business.
WHAT IS BUSINESS DEBT RESCUE?
It is the initiation of proceedings aimed at the rehabilitation of a financially distressed business entity.
HOW DOES THE DEBT RESCUE WORK?
The company is placed under temporary supervision of its financial affairs and assets. The person appointed to oversee the business debt rescue process is called a business rescue practitioner.
WHAT HAPPENS TO THE CREDITOR CLAIMS AGAINST THE COMPANY AND ITS PROPERTIES DURING THIS PROCESS?
A temporary stay is put on the claims and rights of claimants against the business under debt rescue.
WHAT DOES THE RESCUE ENTAIL?
It entails the development and approval of a plan to rescue the distressed firm through the restructuring of its debt, liabilities, assets, property, various liabilities, and management.
WHEN IS A BUSINESS PLACED UNDER DEBT RESCUE?
If a firm is financially distressed, it qualifies. This means that it must be reasonably unlikely that the firm would be able to pay debts due and debts becoming due within the next six months from the test for business rescue. If a firm is likely to become insolvent within the next six months, it thus qualifies for business rescue.
WHAT IS THE PURPOSE OF THE PROCESS?
In order to save jobs, protect the interests of shareholders and stakeholders, protect the public, and ensure that a firm stays afloat, it may be necessary to restructure rather than liquidate the company. The aim of the process is to ensure the company stays solvent and that creditors can benefit from the solvency of the company.
WHY A BUSINESS RESCUE PRACTITIONER?
It is the appointed person for coordinating, supervising, and overseeing the rescue process. More than one person can be appointed. It is best to discuss how it works with our attorneys.
WHAT IS AN AFFECTED PARTY OR PERSON?
It is anyone who is a significant role player in the business debt rescue process. This can be an employee, creditor, shareholder, or registered trade union that represents the employees of the company undergoing the rescue process.
HOW DOES ONE PLACE A COMPANY UNDER BUSINESS DEBT RESCUE?
The board of directors, any affected persons through a court application, and a court application where the company is financially distressed are the only times and ways for initiating business rescue.
HOW DOES THE PROCESS AFFECT THE DIRECTORS?
During the proceedings, the directors continue to act as directors, subject to the authority of the appointed business rescue practitioner. They must assist the practitioner in running the business, and they may delegate functions and powers to the practitioner, where the practitioner substitutes the board of directors and management team.
WHEN CAN RESCUE PROCEEDINGS NOT BE INITIATED?
One may not initiate rescue proceedings if there are already liquidation proceedings in place against the company.
ON WHAT MUST THE PRACTITIONER REPORT AND HOW DOES IT WORK?
The practitioner must notify all affected parties and the court if there is no reasonable prospect for successful rescue, and if there is sufficient reason to believe that the firm is no longer financially distressed.
The practitioner must report to court and affected parties if evidence is found before the start of the rescue proceedings that directors failed to perform their material obligations to the company. The practitioner must direct the persons responsible for management of the firm to take necessary steps in rectifying problems related to such. The practitioner must report reckless trading, illegal activities, and fraud. This must be forwarded to the relevant authority for the necessary investigation and possible further legal action against the management team.
WHERE CAN ONE GET LEGAL HELP IN APPOINTING A BUSINESS RESCUE PRACTITIONER?
Call on our team of attorneys for assistance on business debt rescue matters and information on how the process works should you want to initiate proceedings for such. This applies if you are an affected person or the board of directors. We offer professional assistance for and can be appointed as business rescue practitioners. We work hard to ensure the process runs as smoothly as possible.
Disclaimer: This article is for informational 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.