Often businesses hit a “speed wobble” financially, becoming financially distressed and facing cashflow problems or being unable to pay its creditors and debts as they become due. Although the business cannot meet its current financial obligations, the business is viable, projections look good and the business, if given some “breathing room”, will be able to trade out of its current financially distressed circumstances. This is where the process of Business Rescue comes in.
Section 128(1)(b) of the New Companies Act defines “Business Rescue” as Proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for –
- the temporary supervision of the company by a Business Rescue Practitioner who takes over the management of business’s affairs and property;
- a temporary suspension on all creditors to claim against the company in respect of debts owing to them; and
- the development and implementation, if approved by creditors, of a business plan to rescue the Company by restructuring its affairs (business, property, debt, other liabilities, equity) in a manner that maximises the likelihood of the Company continuing on a solvent basis. If rescue is not possible, then to try and obtain a better return for the Company’s creditors or shareholders than would result from the immediate liquidation of the Company.
The purpose of Business Rescue is therefore to restructure the financial affairs of a Company so that the likelihood of that Company continuing its existence on a solvent basis is maximised, alternatively the restructuring results in a better return for the Company’s creditors than would be realised from liquidation of the Company.
The test for whether a Company is “financially distressed” and should enter into Business Rescue is –
- whether the Company appears to be reasonably unlikely to be able to pay all of its debts as they become due and payable within the immediate ensuing 6 months; or
- it appears to be reasonably likely that the Company will become insolvent within the immediate ensuing 6 months.
If the above scenario applies to your business and the answer to the test questions is “yes”, then Business Rescue may be the best option for your business.
Business Rescue Practitioner
It is important, however, to consult an expert before making any decisions regarding Business Rescue so that all avenues can be explored and a competent and honest Business Rescue practitioner can be appointed (as there are many who use the Business Rescue process for their own gain).