Business rescue

May 1st, 2012

Law Society of South Africa AGM 2012

The Law Society of South Africa’s annual general meeting took place from 26 to 27 March at Emperors Palace in Johannesburg. On the agenda were the Legal Practice Bill, court-based mediation, business rescue, corruption and the attorneys’ profession and social media.

By Nomfundo Manyathi

Professor at the University of South Africa, Anneli Loubser, and Amanda Lotheringen from the Companies and Intellectual Property Commission (CIPC) at the Department of Trade and Industry (DTI) gave presentations on business rescue, which included recent trends and statistics relating to business rescue proceedings.

Ms Loubser said that business rescue, which was introduced in chapter 6 of the new Companies Act 71 of 2008, provided job opportunities for attorneys, as business rescue practitioners were needed. Ms Loubser went through the necessary qualifications for business rescue practitioners in s 138 of the Act, as well as the categories of practitioners.

Ms Lotheringen said that one of the main purposes of the new Companies Act, contained in s 7(k), was to provide for efficient rescue and recovery of financially distressed companies in a manner that balanced the rights and interests of all relevant stakeholders. She added that the Act was ‘powerful’ and could serve as an example to other countries.

She said that a decision to make use of business rescue proceedings should be taken before it was too late – when the business was in distress, but at least six months before it became insolvent. Ms Lotheringen stressed that the remedies available must be used in good time.

Ms Lotheringen said that business rescue was a largely self-administered process by the business, which could choose a practitioner where the board had applied for business rescue. She said that if liquidation proceedings had already commenced, business rescue was not an option unless a court ordered a business rescue on application.

Ms Lotheringen said the business rescue process progressed as follows:

  • It began when the board passed a resolution that the business voluntarily begin business rescue proceedings or an affected person, such as a shareholder, creditor or employee, applied to court for business rescue.
  • Within five days after passing such a resolution, the business must appoint a business rescue practitioner and publish and file the notice as prescribed in the regulations with the CIPC within two days and inform all affected parties of the appointment.
  • Business rescue proceedings end when a court sets aside a resolution or order that begins the proceedings or converts the business rescue proceedings into liquidation proceedings. If the latter is the case, then the business rescue practitioner files a notice terminating business rescue proceedings.
  • The business rescue practitioner must report on the progress of proceedings to all affected persons.

Ms Lotheringen said that during business rescue proceedings no legal proceedings may commence or proceed against the business in any forum. She also said that during business rescue proceedings all directors of the respective business can only act by authority of the business rescue practitioner.

Ms Lotheringen said that to become an accredited and licensed business rescue practitioner, one must register at the CIPC or at the regulatory authority he reports to.

The commission, after receiving the application, will either issue the licence applied for, issue a conditional licence on terms that are reasonable or will refuse the licence.

She added that there were three categories of business rescue practitioners:

  • Senior practitioners, who had ten years’ experience or more.
  • Experienced practitioners, who had five years’ experience or more.
  • Junior business rescue practitioners, who had less than five years’ experience.

She said that joint appointments were allowed and that the Act states that a business rescue practitioner may be a member of the legal, accounting or business management professions. Ms Lotheringen said that no accreditation of any profession was currently in place.

She then provided some statistics on business rescue as of March 2012:

  • 428 notices of beginning of business rescue proceedings were filed.
  • 13 were discarded as they were not valid filings.
  • There were 63 notices of termination of business rescue proceedings.
  • Inquiries received approximately 400 calls a month.
  • 203 applications for practitioners’ licences were received.
  • 73 practitioners were accredited as business rescue practitioners.
  • There were seven successfully completed business rescue projects.

Ms Lotheringen also highlighted some of the trends pertaining to business rescue that she had noticed. She said that many of the notices filed during May, June and July 2011 were discarded as no further steps were taken to appoint practitioners. In addition, the CIPC had notices filed where practitioners were licensed but the companies never made the appointments; it also received three applications for companies in which liquidation applications had commenced and for two trusts, which cannot be placed under rescue in terms of the Act, all of which were discarded.

She said that most of the inquiries the DTI received were on the processes for licensing and on how businesses can go about starting rescue proceedings. She said that most of the notices of beginning business rescue proceedings received were from (Pty) Ltds.

Ms Lotheringen also spoke about the sectors that applications for business rescue indicated were suffering the most. She said that mining and quarrying had 15 failures in 2011 compared to eight in the first five months of 2010; that the electricity, gas and water sector had experienced five liquidations and three a year earlier; transport, storage and communication had 90 closures compared to 54 in 2010. This, she said, reflected very tight operating margins. She added that 247 liquidations were seen in the community, social and personal services industry as compared to 153 the previous year.

Nomfundo Manyathi,

This article was first published in De Rebus in 2012 (May) DR 19.