Corporate Renewal Solutions Blog

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Friday, March 30, 2007

Draft business rescue legislation - main features

Main features of draft business rescue provisions as contained in Chapter 6 of the Companies Bill, 2007

Business rescue means proceedings to facilitate the rehabilitation by its management of a company that is insolvent, or may imminently become insolvent - section 130(1)(b).

  • Largely self-administered by the company.
  • Management of the affairs, business and property of the company is under independent supervision, within constraints - section 130(1)(b)(i).
  • Subject to court intervention at any time on application by any of the stakeholders.
  • A temporary moratorium on the rights of claimants against the company or in respect of property in its possession - section 130(1)(b)(ii).
  • The development and implementation of a plan to rescue the company through restructuring of its affairs, business, property, debt and other liabilities, and equities - section 130(1)(b)(iii).


  • Very low hurdle rate for the debtor to commence business rescue proceedings:
    • Ordinary resolution as opposed to a special resolution in order to enter the procedure (as opposed to a special resolution required for winding-up) or a decision by the board of the company – section 132(1).
  • While it is relatively easy for a company to enter the business rescue proceeding, the hurdle that an affected person (shareholder, creditor, trade union or unrepresented employee) has to clear in order to have the proceeding set aside is extremely high:
    • A court application is required, which involves high costs and other risks – section 133(1).
    • The business rescue proceeding will only be set aside if there is “overwhelming evidence” supporting the applicant’s allegation that there is no reasonable prospect of rescuing the company – section 133(5)(a).
  • The shareholders or board can appoint the supervisor in charge of business rescue – section 132(3)(b):
    • Difficult for creditors to overturn this appointment in court – section 133(1)(b).
    • The company and the supervisor being able to enter an agreement regarding the remuneration payable to the supervisor – section 146.
    • Simple majority required by the supervisor to obtain authorisation to do most things.
    • The supervisor may authorise the company to borrow in priority of existing obligations in order to fund ongoing business activities - section 143(1)(c).
    • Committee of employees, or of creditors that may consult with the supervisor in charge of business rescue about any matter relating to the business rescue proceedings, but that may not direct or instruct the supervisor – section 152.
    • The simple majority required in order to accept a business rescue plan – section 155.
  • Directors and management continue to perform and exercise their functions and powers (albeit that the supervisor can remove management from office) – section 143.
  • Suppliers are to continue to supply on the same terms and conditions - section 139.

Ranking of claims

The supervisor's remuneration and other business rescue cost rank highest, then unpaid monies owed to employees in the order in which they were occurred, then secured claims, then post-commencement finance in the order in which they were occurred, then unsecured claims - section 138.   (Does Sars now become a unsecured rather than a preferred creditor?).


Although a detailed timeline is set, the time limit on the duration of business rescue can be extended through court or creditor approval - section 135.


  • Recognition of the interests of shareholders, creditors and employees, and provision for their respective participation in the development and approval of a business rescue plan:
    • Creditors, funders, trade unions, shareholders and employees must elect a representative forum, which must then decide whether a business rescue plan presented by the supervisor is viable.
  • Protection of the interests of workers by:
    • Recognising them as creditors of the company with a voting interest to the extent of any unpaid remuneration,
    • Requiring consultation with them in the development of the business rescue plan,
    • Permitting them an opportunity to address creditors before a vote on the plan, and
    • According them, as a group, the right to buy out any dissenting creditor who has voted against approving a rescue plan.
    • Ranking employee claims, in the event of a liquidation, highest after the costs of business rescue, above secured claims, post-commencement finance, and unsecured claims - section 138.
    • Not allowing retrenchment - section 139.

For more information read Business rescue.

The implications of and key success factors for successful business rescue in South Africa will be addressed in blogs to follow.

This turnaround news flash was brought to you by CRS Turnaround - turnaround management consulting firm rescuing distressed companies and improving results of underperforming companies in South Africa.


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