Definitions of Chapter 6 of the Companies’ Act 2008
- Business Rescue means the plans and steps taken to rescue and rehabilitate a company that is financially distressed by:
- Putting in place the temporary supervision of the company and the management of its affairs, business and property.
- Putting a temporary moratorium in place to prevent creditors claiming against the company or any property in its possession.
- Developing and implementing, if approved, a plan to rescue the company
- A) By restructuring its affairs, business property, equity, debt and other liabilities in a manner that maximises the likelihood of the company’s continued and solvent existence or,
- B) If a rescue is not possible then by developing and implementing a plan which results in the company’s creditors or shareholders getting a better return than if the company was simply liquidated.
Financial distress for a company means that:
- It appears to be reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable within the immediate ensuing 6 months (commercial insolvency).
- It appears to be reasonably likely that the company will become “insolvent” within the immediate ensuing 6 months (factual insolvency).
Business Rescue Practitioner
- A Business Rescue Practitioner is one or more persons appointed to oversee a company during a business rescue operation.
- In relation to a company an affected person is:
- A shareholder or creditor of the company in distress.
- Any registered trade union representing employees of the company in distress.
- If any of the employees of the distressed company are not represented by a registered trade union, each of those employees or their respective representatives.
Ranking of Claims
- Business Rescue Practitioner’s remuneration, expenses and claims owed to him or her as a result of the costs of the Business Rescue operation. (S135(3))
- Remuneration reimbursement for expenses, or other amounts of money relating to employment that is due and payable by the company to an employee once a Business Rescue has begun PCF;
- Secured lenders/creditors before the Business Rescue was implemented.
- Secured claims by post commencement financiers or lenders/creditors in the order in which claims were incurred (S135(3)(a)(i));
- Insolvency Act preferences
- Unsecured claims by post commencement financiers or lenders/creditors during the Business Rescue in the order in which they were incurred (S135(3)(b))
- Remuneration of employees which became due and payable before the Business Rescue started. (S144(2))
- Unsecured claims and unsecured creditors/lenders before the Business Rescue began. (S135(3)(a)(ii))
Business Rescue Plan Process
Submission of the Plan – Section 150
- The plan must be prepared by the Business Rescue Practitioner in consultation with all affected persons and management of the company.
- The plan must contain all the information that the affected persons will reasonably require in order to decide whether or not to accept or reject the plan.
- The plan must be published by the company within 25 days after the date on the appointment of the Business Rescue Practitioner. For example, if the practitioner is appointed on 10 August, 2012, then the plan must be published on 14 September, 2012
Voting on the Plan – Section 151
- Within 10 days after publishing the Plan :
- The Business Rescue Practitioner must convene and preside over a meeting of creditors and other holders of voting interest called for the purpose of considering the plan;
- At least 5 days before the meeting, a notice must be delivered to all affected persons advising them of the date, time and venue. It must also contain an agenda and a summary of the rights of all the affected persons.
- The meeting may be adjourned from time to time as necessary or expedient until a decision regarding the company’s future has been taken in accordance with Sections 152 and 153.
Approval of Plan – Section 152 (2)
- The Plan can be approved on a preliminary basis if:
- It is supported by more than 75% of all unsecured and secured creditors with voting interests. (in value)
- Section 152(3)(b) If the proposed plan is approved on a preliminary basis and it doesn’t alter the rights of any class of company’s securities, the plan is then finally adopted subject to any conditions upon which the plan is contingent.
- Section 152 (3)(a) If the proposed plan is not approved on a preliminary basis, it is rejected and may be reworked in terms of Section 153
- Section 153 (1) If the plan is rejected the Business Rescue Practitioner may:
- Seek a vote of approval from the holders of voting interests to prepare and publish a revised plan or
- Advise the meeting that the company will apply to the court to set aside the result of the vote on the grounds that it was inappropriate.
Important to Note
- If the plan is approved and implemented, a creditor is not entitled to enforce any debt owed by the company before the Business Rescue began, beyond the extent provided for in the plan.