Business rescue is a process designed to rehabilitate a business that is in financial distress. Business rescue in South Africa is now possible as a result of this process being included in the Companies Act, Nr. 71 of 2008. Business rescue is possible if certain requirements are met by the business and is designed to be an alternative to the liquidation of a business in distress.
The aim of placing a business into business rescue is to attempt a restructuring of the business so that it can move from an insolvent state back into a solvent state. Alternatively if the business cannot be returned to a solvent state then the aim of business rescue is to get the creditors a better return, or also called a dividend, than what they would have received if the business was simply liquidated.
In order for a business to be placed into business rescue one of the major criteria is that it must be in financial distress. In accordance with the Chapter 6 section 128 of Companies Act a business is said to be in financial distress if it appears: a) to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months or b) it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months.
The reasonable prospect of a successful business rescue is the second minimum criteria that must be in place before any application for business rescue can be made. The feasibility of a business rescue is calculated using various scoring methods and all the results from these scores will indicate if a reasonable prospect of a successful business rescue exits.
Business Rescue is not a team sport and it is not a game played around boardroom tables using PowerPoint Presentations or Excel Projections. It is a war being fought on ground level where instructions need to be followed by those being held accountable. Pat Pattinson