During business rescue proceedings the Act provides
for three formal meetings to be arranged and led by the appointed business
rescue practitioner. The main purpose of the first meeting of creditors is for
the business rescue practitioner to evaluate and receive proof of claims by the
creditors of the company. A meeting of employees also needs to be arranged in
order to inform such employees of the rights in these proceedings.
After the
business rescue practitioner presents the proposed business rescue plan to all
affected parties, a second meeting of creditors takes place entertaining
discussions on the proposed business rescue plan, possible amendments and the
eventual voting on the proposed business rescue plan. If the proposed business
rescue plan also contemplates a restructuring that affects the holders of the
company’s securities (shareholders), such holders shall also be entitled to
vote on the proposed adoption of the business rescue plan.
Thursday, November 29, 2012
Tuesday, November 27, 2012
Essence of a Business Rescue plan
In business rescue proceedings the
appointed business rescue practitioner is obligated to formulate a business
rescue plan within 25 days from his appointment, setting out, amongst others:
- Brief description of the financial distress of the company and manner in which the situation will be rectified;
- The projected income and expenses of the company in the ensuing three years;
- The projected balance sheet;
- The current assets and liabilities of the company;
- The proposed repayment towards creditors, including any compromise contemplated towards any creditors;
Each
creditor’s voting right according to its specific claim and class.
As the proposed business rescue
plan constitutes projections of the company in the ensuing three years and an
opinion of the appointed business rescue practitioner on exactly how the
company will be rescued from its current financial duress, each affected party
is entitled to propose amendments to the proposed business rescue plan prior to
a vote being taken thereon deciding the fate of the company.
Monday, November 26, 2012
Pros & Cons of Business Rescue
Although
business rescue in South Africa went off to a rocky start since inception of
the act on 1 May 2011, it seems to have become a recognized process as more and
more effected parties as well as major financial institutions familiarize
themselves with the process. South Africa has furthermore recently seen major
enterprises like One Time Airlines and TOP TV undergo the process.
Currently
the single most adverse effect of business rescue proceedings is the negative
publicity the company undertaking such proceedings undergoes in the financial
world. Financial institutions are reluctant to grant post commencement finance
for companies under business rescue and in most instances such financial
institutions may elect to suspend its facilities with the company pending a
renewal application by the business rescue practitioner appointed.
On
the other hand business rescue provides a breathing space for companies
experiencing financial duress, where creditors are not allowed to proceed with
or execute on any legal proceedings pending the outcome of the business rescue
proceedings. Business rescue furthermore has a recognized international model
whereby the obligations of the company towards its creditors, cannot only be
restructured but also compromised over an extended period of time by the
appointed business rescue practitioner. When it comes to the restructuring of
an entity, business rescue ensures for a regulated environment in which such
restructuring can occur.
Even
if a company is found to have passed the point of being successfully rescued,
business rescue proceedings enable the appointed business rescue practitioner
to endeavor a better return for creditors than would be the case in the liquidation
of such an entity. No wonder financial institutions are currently electing to
forcefully place companies in financial distress under business rescue instead
of proceeding with liquidation steps as was the normal practice.
Sunday, November 25, 2012
How does a company go under Business Rescue?
Any
company or close corporation can be placed under business rescue when the
management of such an entity resolves to undergo these proceedings and lodges
an appropriate application with the Companies and Intellectual Property
Commission. This application is
prohibited if liquidation proceedings are pending against the Company or Close
Corporation, but can business rescue in these circumstances still commence if
the High Court grants an order to that effect.
This
process takes no more than two days from the passing of a resolution by the
management of the business to commence with business rescue proceedings. It is
therefore a cost effective an simple manner in which the company is placed
under supervision and remains protected from any legal steps taken and/or
contemplated by creditors or other affected parties against the business.
Section
129(7) actually places an obligation on the management of a business to resolve
to undergo business rescue proceedings if the management foresee that the
business will not be able to meet its obligations towards creditors in the
ensuing six months.
It
is therefore imperative that management of Companies and Close Corporation act
proactive in the above mentioned circumstances to remain compliant with the
Companies Act.
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