Business Rescue and Winding up of acompany

Question 1

discuss the liquidation of a company

Answer 1

The liquidation or winding up of a company entails the appointment of a liquidator who sell of the company assets and distribute the proceeds. Both solvent and insolvent companies may be wound up.

Question 2

Discuss the concept of business rescue

Answer 2

Business rescue is the process to rehabilitate a company experiencing financial problems that may be overcome and does not result in the termination of the company’s existence, but is in fact a moratorium (a postponement of payment of debts) being granted to the company.

Business rescue proceedings are:
• The temporary supervision of the company and management of its affairs,
• A temporary moratorium on the rights of claimants against the company, and
• The development and implementation of a plan to rescue the company or achieve a better return for the company’s creditors than liquidation would.

Financially distressed:
A company is financially distressed:
• if it is reasonably unlikely to be able to pay all its debts as they become due in the next Six months ; or
• if the company is reasonably likely to become Insolvent within the next six months.

Question 3

Discuss the ways in which business rescue may commence

Answer 3

There are two ways in which business rescue proceedings may be commenced:
• Through a resolution by the board of directors;
• By court order.

3.1 Business rescue through a resolution by the board of directors

Business rescue through a resolution by the board of directors (BD) involves:
• Passing of a resolution (decision) by the BD’s;
• Filing of the resolution with the Commission;
• Notification of all affected parties;
• Appointment of a business rescue practitioner.

3.2 Business rescue court order

The following persons (applicants) may apply for the winding up by the court of a profit company.​
• The company;
• Shareholders;
• Directors;
• The creditors;
• The business rescue practitioner;
• The Takeover Regulation Panel.​

Question 4

Discuss the legal consequences of a business rescue

Answer 4

The legal consequences of business rescue proceedings are as follow:
• Civil legal proceedings are stayed: No legal proceedings can be instituted or proceeded with against the company
• Disposal of company’s property is restricted: Transactions relating to property owned by the company may only take place;
o in the ordinary course of business,
o at arms’ length and for fair value
o with the written consent of the practitioner, approved business rescue plan or court order.
• Contracts with the company: the business rescue practitioner has a discretion to proceed with any contract or not. The practitioner may unilaterally cancel or suspend the contract entirely or any part of it. Exception: employment contracts are protected- they proceed in terms of the existing terms and conditions.
• Directors must co-operate with the business rescue practitioner.
• Re-financing the company is facilitated by allowing for company assets to be used to secure loans
• Obligations to employees are regarded as post-commencement finance and are preferential claims
• Status of issued shares may not be altered and shareholders may only participate in decisions if their interests will be affected