WHAT IS DEBT RESCUE?

WHAT IS DEBT RESCUE? IS IT APPLICABLE TO A BUSINESS?

A company’s financial affairs can quickly turn into nightmares for the directors and shareholders. It is at this stage when directors ask the question: “What is debt rescue?” They wonder whether debt rescue can be applied to businesses.

Understanding what is debt rescue in terms of businesses is important if your firm is in financial trouble. Our team of insolvency attorneys can explain what debt rescue is and how it applies to commercial entities. Indeed, the question should rather be “What is business rescue?”

We briefly answer the question below, helping you make an informed decision on how to proceed should your firm be in financial trouble.

WHAT IS DEBT RESCUE OF A BUSINESS?

Better known as business rescue, it is a plan for rehabilitation of a firm that is financially distressed. An appointed business rescue practitioner draws up the business rescue plan in consultation with relevant parties. The plan is then implemented in an attempt to avoid having to liquidate the firm.

RESPONSIBILITY OF THE DIRECTORS

According to the requirements of the New Companies Act, the directors of a firm must put the business under debt rescue or publish a notice to the relevant parties to inform them of the financial status of the company. They must then also provide sufficient reasons for not putting the company under business rescue.

PARTIES THAT CAN APPLY FOR THE BUSINESS RESCUE

The directors, shareholders, trade unions on behalf of members, or employees may bring an application for business rescue to court.

GROUNDS FOR GRANTING THE ORDER

Here is why it is important to understand what debt rescue is in terms of a business, since certain requirements must be met before the court grants such an order. For one, the company must be proven to be in financial duress, and there must be a reasonable possibility that the firm can be saved. In addition, all the requirements for procedures to follow must be met, and the court must consider it as just and equitable to grant the order for business rescue.

STAY OF LEGAL PROCEEDINGS

Certain legal proceedings can be stayed for the duration of business rescue proceedings. However, if the business rescue practitioner consents, specific legal proceedings against the firm may continue. This is also the case if the court orders such or if done as a set-off in the legal proceedings. Legal proceedings regarding a right that the company holds, criminal proceedings against the directors of the company or the firm itself, and proceedings regarding surety by the firm are not included in the stay of legal proceedings.

DEBT RESCUE WHILE A COMPANY IS UNDERGOING LIQUIDATION

It is possible to apply for business rescue even if an application for liquidation has been made. If the rescue order is granted, then the liquidation application is no longer applicable. However, if the rescue order is not given, then the application for liquidation stays in place.

REQUIREMENTS FOR THE BUSINESS RESCUE PRACTITIONER (BRP)

The BRP may not be related to the firm and may not have been disqualified as a director of the business. The BRP must be trusted within a profession that is regulated.

WHAT HAPPENS IF THE CREDITORS VOTE AGAINST THE IMPLEMENTATION OF THE BUSINESS RESCUE PLAN?

In such an instance, the BRP must submit a notice of termination of the rescue procedure, and the creditors can take legal action to ensure attachment of the firm’s assets. The creditors can also apply for the firm’s liquidation and for legal steps against persons that have signed surety for the debt of the company.

WHAT IS THE TEST FOR BUSINESS RESCUE?

A firm must be financially distressed. This means that is must be unlikely that the firm will be able to pay the debts if such become due and payable within six months, and if it is likely that the business entity will become insolvent immediately or within six months.

PURPOSE OF BUSINESS RESCUE

The goal is to ensure that the firm can continue in a solvent financial state or provide a better return for the company’s creditors than with liquidation.

WHERE TO GET DEBT RESCUE HELP

Get in touch with our attorneys to help with business rescue or to apply for liquidation of a company in South Africa.


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.