Protection provided by Business Rescue

When Business Rescue for a Company or Close Corporation commences (“the company”), either in terms of a resolution by directors filed at the Companies and Intellectual Property Commission in terms of section 129 of the Companies Act, Act 71 of 2008 (“the Act), or in terms of a Court application launched in terms of section 131 of the Act, Section 133 of the Act places a general moratorium on any legal proceedings or execution steps by or against the company.

The effect of the provision supra is that the company is protected against any legal action taken or about to be taken by creditors. The general moratorium even protects the company in circumstances where creditors have obtained judgment against the company and contemplates proceeding with execution steps against the company.  

The general moratorium on legal proceedings and execution steps remains in place for the duration of the business rescue proceedings, save in instances where the business rescue practitioner consents otherwise or the Court grants an order uplifting the moratorium in certain instances.

The legislature’s intention with the general  moratorium is clearly that creditors are prohibited from taking a run on the company’s assets pending the outcome of the business rescue proceedings and that the company is offered a genuine chance of being rescued.  

Further protection is provided for the company against creditors if the business rescue proceedings are successfully implemented and the company continues to return to a viable concern. Section 154 of the Act clearly provides that, in the event that a business rescue plan is adopted and successfully implemented, no creditor that had notice of the proceedings can continue to enforce any rights that he or she had prior to the commencement of business rescue proceedings, save to the extent provided for in the adopted business rescue plan. 

A business rescue plan can provide that obligations towards creditors are restructured or compromised over extended periods, provided that such restructuring or compromise constitutes a beter return for creditors versus the immediate liquidation of that company.

Where obligations towards creditors are restructured or compromised successfully with the adoption of a business rescue plan, and the business rescue proceedings is substantially implemented in that the company is able to comply with such restructured and/or compromised repayments towards creditors, no creditor will be able to enforce the original obligations towards it prior to the business rescue proceedings, save to the extent provided for in the adopted business rescue plan.

Without the protection afforded by the Act a company is never on equal footing with creditors in negotiating the restructuring or the compromise of its obligations. Business rescue proceedings offer a secure environment for the company to negotiate on equal footing with creditors.