Who can apply for business rescue

Financially distressed is defined in the Companies Act as:

“in reference to a particular company at any particular time means that

i. It appears to be reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable within the immediately ensuing six months; or

ii. It appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months”

As a company is afforded certain protections against creditors during business rescue a company may not merely make a filing when it is not financially distressed. Should the business practitioner’s assessment determine that the company is not financially stressed the process may be cancelled or alternatively, another affected party may also apply to have the process set aside.

An external company is basically a branch of a foreign company operating in South Africa that has been registered with the CIPC.

How do you apply

There are three ways in which business rescue proceedings may be initiated for a company

1. Voluntary business rescue

If the Board of Directors has reasonable grounds to believe that the company is financially stressed as defined above, then they may resolve to voluntarily place the company under supervision.

A copy of the resolution together with a Form 123.1 – Notice of Beginning of Business Rescue Proceedings must be filed with the CIPC.

The board of directors cannot adopt such a resolution if liquidation procedures have been initiated by or against the company

The application for business rescue will be voided if the company does not

• Within 5 days of having adopted and filed the resolution
  • Publish a notice of the resolution to every affected person together with a sworn statement of the facts relevant to the grounds on which the board resolution was founded; and
  • Appoint a business rescue practitioner who has consented in writing to accept the position.
• File a notice of the appointment a practitioner within 2 days of the appointment and
• Publish a notice of the business rescue practitioner’s appointment to all affected parties within 5 days of it being filed.

If the business rescue proceedings are voided the company may not make another application for a period of 3 months.

If the Board of directors reasonably believes a company is distressed but does not resolve to initiate business rescue proceedings, it is obliged to advise all affected persons of the applicable criteria and reasons for not adopting a business rescue resolution.

2. Compulsory or court ordered business rescue

In this case an affected person may apply to the court to have the company placed in business rescue.

An affected person may be one of the following

• A creditor
• An employee or a trade union representing the employees
• A Shareholder

An affected person making an application to court is required to notify all affected parties, the company and the CIPC of the application and these parties may also participate in the hearing.

All affected parties must be informed within 5 days of any order being granted.

3. Court order during liquidation proceedings

As per option 2, an affected person may apply to the court to have the company placed in business rescue at any time during liquidation proceedings.

The liquidation application pending at the time that an application for business rescue proceedings is made is stayed until the court has dispensed with the application or the business rescue proceedings have been concluded.

A company that has been placed into business rescue in terms of a court order may not apply for liquidation until the business rescue is concluded.

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Business Rescue Practitioner Categories

If you are considering that question then you are in the right place, so let’s dive right in.

So when considering what Business Practitioner is required you need to understand that Business Rescue Practitioners fall into 3 categories:

1. Senior Practitioner – actively engaged with business rescue for a period of at least 10 years.
2. Experienced Practitioner – actively engaged with business rescue for a period of at least 5 years
3. Junior Practitioner – actively engaged with business rescue for a period of at least 5 years

Company Classification

Companies undergoing business rescue fall into 3 categories

1. Large Companies

A company other than a state-owned enterprise with a public interest score greater than 500

2. Medium Companies

a. A public company with a public interest score of less than 500

b. A company other than a state-owned enterprise with a public interest score greater that 100 but less than 500

3. Small companies

A company other than a state-owned enterprise with a public interest score less than 100

Appointment Criteria

A Junior Practitioner may be appointed as a BRP to a small company

An Experienced Practitioner may be appointed as a BRP to a Small or Medium company. An
experienced BRP may also be appointed to a large company or state-owner enterprise but must be
assisted by a Senior Practitioner
A Senior Practitioner may be appointed as a BRP to any company

Public Interest Score

The public interest score is defined in the Companies Act and is calculated as the sum of

• Number of points equal to the average number of employees during the year
• One point for every R1 million of third-party liability at the financial year end
• One point for every R1 million turnover during the year
• One point for every individual who, at the financial year end, is known to the company
  • In the case of a profit company to, directly or indirectly have a beneficial interest in any issued securities of the company
  • In the case of an NPO to be a member of the company or a member of an association who is a member of the company.

Business Rescue Practitioner Rates

In terms of the companies Act a BRP can charge a company in business rescue for remuneration and expenses according to a tariff prescribed by the Minister.

The BRP may also propose additional remuneration – a contingency/success fee based on

• The acceptance of a business plan (within a certain timeframe) or certain matters being included in the plan
• The attainment of a certain result/s

The BRP rates are specified in the Companies Act Regulations; however, these rates have not been adjusted for a number of years and it is normal when negotiating a fee with a client for these fees to be adjusted for inflation.

The basic remuneration as per the current tariff prescribed by the Minister stipulates that the remuneration cannot exceed:

• Small Companies – R1 250/hour or R15 625/day (incl. VAT)
• Medium Companies – R1 500/hour or R18 750/day (incl. VAT)
• Large Companies – R2 000/hour or R25 000/day (incl. VAT)

In addition to above the BRP can be reimbursed for any expenses they incur in performing their duties.

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Background

As companies entering business rescue are financially stressed, time is of the essence and any rescue plan needs to be compiled and implemented as soon as is practically possible.

The process is accordingly well-defined and requires strict adherence to a number of deadlines with serious consequences should they not be met.

While it is possible to apply to the CIPC or if relevant the court, for an extension for number of deadlines, this article attempts to provide a general timetable of events that need to occur. The timetable below is applicable to the voluntary process of applying for business rescue as opposed to a court order.

Business Rescue Timetable

1. Application

The board of directors must file the prescribed form and a copy of the resolution with the CIPC.

Within 5 days of the board of directors having adopted and filed a resolution to commence business rescue proceedings they must

• Publish a notice of the resolution to every affected person together with a sworn statement of the facts relevant to the grounds on which the board resolution was founded; and
• Appoint a business rescue practitioner who has consented in writing to accept the position.

2. Business rescue practitioner appointment

The board of directors must

• File a notice of the appointment a practitioner within 2 days of the appointment and
• Publish a notice of the business rescue practitioner’s appointment to all affected parties within 5 days of it being filed.

A failure to comply with 1 and 2 will void the business rescue proceedings.

3. Duration

If the business rescue proceedings have not been concluded after 3 months the business rescue practitioner needs to prepare a report on the proceedings. They will then need to update it at the end of each subsequent month until the end of proceedings and deliver it to each affected person and the CIPC.

4. Directors cooperation

With 5 days of the commencement of business rescue proceedings, or such longer period that the practitioner allows, the directors of a company must provide the practitioner with a statement of affairs which contains as a minimum certain information as specified in the Companies Act

5. Practitioner’s remuneration

Any creditor or shareholder who voted against the proposed remuneration for the practitioner may apply to the court within 10 business days for an order setting aside the agreement

6. First meeting of creditors

Within 10 days of being appointed the business rescue practitioner must convene and preside over a first meeting with creditors

The practitioner must determine who are secured, unsecured or concurrent creditors. The practitioner may have the value of a concurrent creditor’s claim independently appraised. In this instance the practitioner must give the concurrent creditor notice of that appraisal at least 15 days before the meeting to determine the future of company (as per 9 below).

Within 5 days of receiving the appraisal the creditor can apply to the court to review the appraisal.

7. First meeting of employees

Within 10 days of being appointed the business rescue practitioner must convene and preside over a first meeting with employees

8. Publication of business plan

The business rescue plan must be published within 25 days after the date on which the practitioner was appointed.

9. Meeting to determine the future of company

Within 10 days of publication of the plan, the practitioner must convene and preside over a meeting of creditors and any other holders of a voting interest to consider the proposed business rescue plan

• At least 5 business days before the meeting the practitioner must deliver a notice of the meeting to all affected persons
• If a vote is taken regarding the business rescue plan and an affected party or the practitioners intends to apply to court to have the vote set aside the practitioner must adjourn the meeting for 5 days to allow the court to deal with the matter
• If, on the request of the practitioner or called upon by an affected person to prepare and publish a revised business rescue plan in terms of the provisions of the Act, the practitioner must do so within 10 business days.
• If an affected person makes an offer to acquire the rights and claims of another affected person as provided for, the practitioner must adjourn the meeting for no more than 5 days to make the necessary revisions to the business rescue plan.

Termination

The business rescue process terminates when either

• The court
  • Sets aside the resolution on which the business rescue proceedings were initiated
  • Has converted the proceedings to liquidation proceedings
• The practitioner has filed a notice of the termination of business rescue proceedings or
• The business rescue plan has been
  • Rejected and no person acted to extend the proceedings
  • Adopted and the practitioner has subsequently filed a notice of substantial implementation of that plan.

Conclusion

While the Companies Act provides for a defined time frame the financial reality of the company will often dictate that timing of the process. Successful business rescue proceedings often take substantially longer that provided for in the Companies Act.

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Looking for Business Rescue Practitioners? Look no further than Adarna. With decades of business experience our registered Business Rescue Practitioners and Business Turnaround Experts are here to assist you and your business.

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