Business Rescue is not for Sissies

Business Rescue is not for Sissies

Chapter 6 (Business Rescue) of the New Companies Act of 2008 which became effective on 1 May 2011 is the rehabilitation of a financially distressed business by providing for:

  • The temporary supervision of the company and of the management of its affairs, business and property.
  • A temporary moratorium on the rights of claimants against the company.
  • The development and implementation of a business rescue plan.
  • The business rescue plan will be published 25 days after the appointment of the business rescue practitioner and a second meeting of creditors will be convened 10 days after publication for voting.
  • Implementation of the plan begins after the second meeting of creditors.

The main objective of business rescue is to provide a better return for affected parties than if the business were to be immediately liquidated. On the softer side, the intention is to save jobs and keep the company in business.

Business Rescue Practitioner

Being a business rescue practitioner takes a very special kind of person. They are appointed to take over the temporary supervision of the business. He or she has all the rights and responsibilities normally held by the company’s directors. This appointment is very demanding and can be onerous as affected people tend to incorrectly blame the business rescue practitioner for the financial distress of the business. Even management, in most instances, have a belligerent attitude towards the practitioner as they resent no longer having the control of the company that they used to as well as feeling a measure of guilt for having allowed the company to slide into the situation that necessitates the need for the practitioner’s services. They are probably also feeling resentment from their staff and creditors for the same reason. They also tend not to have confidence in the abilities of this unknown “supervisor”. The practitioner needs to be ethical and operate transparently at all times. Sometimes tough decisions need to be taken that often results in the restructuring of the business with potential job losses.

The practitioner needs to win over the disgruntled creditors who are angry about the potential loss of the amounts owing to them. They can become very aggressive and demanding on the practitioner’s time and resources. Banks in particular take a hard line when a company is placed in a business rescue operation as they believe the “first loss is the best loss”. The bank accounts become “frozen” and access to the proceeds paid into the account is usually denied if the debtors’ book forms part of the bank’s security.

The timelines relating to the process are very demanding as a business rescue plan must be developed within 6 weeks after their appointment. Assessments and investigations into the business must be conducted in that time as the results need to be included in the document that outlines the plan.

Practitioners must employ a firm, credible stance when dealing with all aspects of the business rescue process in order to have the plan approved and implemented.

Impact on Affected Parties

‘Affected parties’ includes the creditors, funders (bankers), shareholders and employees of the company as well as the trade unions if applicable.


As mentioned before creditors are disgruntled and can become very aggressive because of the potential losses they are facing. Credit facilities for the distressed company are stopped and supplies have to be procured on a COD basis which is a huge drain on the cash flow of the business.

Some creditors also believe that a business rescue operation is nothing more than a stalling mechanism and does nothing more than delay the inevitable liquidation. Meetings can become disruptive and the aggressive creditors must be handled firmly. If there are a large number of creditors, a representative creditors committee can be formed in order to make communication between the creditors and the company easier.


While a business rescue does provide an element of certainty and a potential plan for the future, the uncertainty of what the outcome will be creates insecurity, depression and demotivation in employees. They usually are aware that the business is in distress and believe they are facing the failure of the company. This often leads to key people resigning.  Winning them over is a mammoth undertaking as the business rescue practitioner doesn’t always have the necessary expertise and knowledge of the type of business to manage it in isolation. In our experience the development and implementation of the plan has more chance of being approved and of succeeding if there is a team effort and includes everyone concerned.


In order for the business rescue operation to succeed, the support of the shareholders and business owners is vital. Disputes at board level filter down into the organisation and can be the cause of the business, and the rescue operation failing.

We have found that some shareholders are not prepared to assist with any funding or support in order to raise additional capital. They would rather adopt a wait-and-see approach and allow the management (even if they are not shareholders) to bear the brunt of the stress.

Post Commencement Funding

Financial support is required in the form of working capital to assist with the immediate short-term trading needs covering business rescue costs and normal monthly expenses. Obtaining turn-around funding presents a huge challenge for the business’ immediate and long-term needs because most financiers require some form of security and, in most cases, the assets are already encumbered. In many failed rescues, the inability to raise Post Commencement Funding was the main reason for their failure.

We have been fortunate in some of the rescues to have the support of a major secured creditor that has provided post commencement credit facilities particularly in the case of projects that need to be completed. A pragmatic approach is taken and there is an understanding that post commencement funding will assist with the business side of the rescue.


The decision to file for rescue must not be taken lightly. If the directors do decide to file they need to state in a sworn affidavit that the prospect for the rescue of the company is reasonable. They also have to comply with their fiduciary duties, and filing is one way of avoiding being sued for continuing to trade under insolvent conditions.

Sandra Beswick

Author Sandra Beswick

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