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.