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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