HOW CAN A DEBT PRACTITIONER HELP YOU TO RESCUE YOUR BUSINESS?
With more and more companies struggling to keep their doors open and prevent large-scale job losses, the need for an alternative to liquidation has brought about the business rescue option. The Companies Act 71 of 2008 makes provision for business rescue to help a company recover from its financial distress.
A debt practitioner is appointed to oversee the restructuring and organisation of the company’s operations and debts to bring the firm back to a state of solvency. This is to protect the interests of all the stakeholders in the company.
A company cannot apply for business rescue when liquidation proceedings against it have already commenced. To this end, a debt practitioner can advise the board of directors regarding the steps to take to initiate the rescue process.
WHO CAN INITIATE THE RESCUE PROCESS?
The board of directors can do so by filing a notice for such with the CIPC. It can also be done through a court application by affected parties, such as creditors, employees, registered trade unions, or shareholders of the entity.
It is essential for passing the resolution for business rescue the moment the firm cannot pay its debts and its liabilities exceed its assets. Once a creditor has applied for the liquidation of the company and proceedings have commenced, it is too late. The debt or business rescue practitioner must be appointed urgently to take over operations in order to implement the rescue plan.
The practitioner acts in a temporary capacity in the supervision of the business affairs. Once the plan is approved by the stakeholders in the company, the rescue plan is implemented. A member of a close corporation or director of a company has an obligation to pass a resolution for business rescue or liquidation once the person has become aware that the company is not able to pay its debts when due and is in financial distress.
ROLE OF THE COMPANY DIRECTORS
During the process, the directors can continue to act in the capacity of directors under the appointed practitioner and must then assist as required by the practitioner in the operation of the company. The board of directors or a director can delegate functions and powers to the appointed practitioner for full control over the management of the company. In this case, the board relinquishes power of management, and the practitioner takes full control.
PROCESS FOR VOLUNTARY FILING FOR BUSINESS RESCUE
Once the resolution has been passed to apply for business rescue, the relevant stakeholders complete CoR 123.1 at the CIPC and submit such together with the resolution passed to the CIPC. If the company already has a practitioner in mind, such as their debt practitioner, then they must also submit the details of the intended appointment of the person and a statement that details what led to the passing of the resolution. It is imperative to meet the formality requirements, such as the publishing of the notice of business rescue in the relevant publications according to the requirements of the Companies Act.
PRELIMINARY REQUIREMENTS
Once the resolution for business rescue has been passed, the CoR 123.1, the statement, and the resolution must be submitted to CIPC within five days. The company must publish the notice of resolution, in addition to the statement detailing the reasons for the company’s financial distress and prospects of returning the company to a state of solvency through business rescue. This notice must be given to all affected parties.
AFTER THE APPOINTMENT OF THE BUSINESS RESCUE PRACTITIONER
Once the business or debt rescue practitioner has been appointed, the company must, within two business days, submit the notice of such to CIPC and publish the notice of appointment within five days of having submitted the notice to CIPC.
WHY IS IT IMPORTANT FOR THE COMPANY TO ADHERE TO THE TIME REQUIREMENTS?
Failure in terms of a voluntary business rescue to adhere to the time requirements for submissions and notices means that the resolution lapses. It is, therefore, not valid. The company must wait 90 days (thus three months) after the date on which the resolution was passed before it can go through the process again. However, a court can still, at its discretion, approve a further filing of the resolution. It is also possible for one of the affected persons to apply to court to have the resolution set aside because the company has failed to keep with the time limits and procedures as required by the Act.
LENGTH OF BUSINESS RESCUE PROCEEDINGS
The Act stipulates the period for rescue proceedings to be three months. During this period, the appointed practitioner must arrange meetings with the affected persons. The practitioner must also discuss the rescue plan with the said persons and then implement the rescue plan.
If it is not possible to complete the rescue plan during the three-month period, the practitioner must submit a report regarding the progress of the rescue and update the report at the end of each month thereafter until the proceedings have come to an end. This report must be delivered to every affected person according to set procedures. Due to the administrative burden associated with the application to extend the period for rescue proceedings, the debt or rescue practitioner normally attempts to complete the process within three months.
ROLE OF THE PRACTITIONER IN THE PROCESS
The practitioner must assess the company’s financial and management affairs immediately after the business rescue process has started. The information must be used to determine the prospects of rescue. The practitioner sets up meetings with affected persons, such as registered trade unions, shareholders, creditors, and employees to discuss the prospects of rescue. The rescue plan proposal is also discussed with the creditors and other stakeholders.
RELEVANCY OF BUSINESS RESCUE
Each company’s situation is unique. If the practitioner finds that the business cannot be rescued, thus brought back to a place of solvency, then the practitioner must inform the stakeholders and the court of such immediately. A firm operating in the retail sector can benefit from business rescue, whereas it can be rather difficult when it is a property investment firm. The type of operation thus plays a role, as well as the structure, the level of debt, and the industry in which the entity operates.
The practitioner must consider appropriate steps to rectify problems in the company, but if the practitioner’s investigation brings to light information that shows fraud or reckless trading, then the practitioner must forward the information to the relevant authorities for further investigation.
CAN A DEBT PRACTITIONER HELP TO RESCUE YOUR BUSINESS?
We have looked at the proceedings and how a debt practitioner helps to bring a business back to a state of solvency. However, as mentioned, the type of business also determines whether it can be rescued using the business rescue option. If you know that your company is in financial distress, you have an obligation to either pass a resolution for liquidation or apply for business rescue.
The first step is to get in touch with our insolvency attorneys to help determine which route to follow. Aspects, such as industry, number of persons affected, the type of entity, the degree of financial distress, and more must be taken into consideration. Get in touch with our debt practitioners for more information and professional help in this regard.
Disclaimer: This article is for information purposes only and does not constitute legal advice. Call on our attorneys rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing.