The long anticipated new Companies Act No. 71 of 2008 (the Act) became effective in South Africa on 1 May 2011. The Act fundamentally re-writes South African company law and accordingly will have far reaching effects.
Chapter 6 of the Act, which deals with business rescue, effectively replaces the existing judicial management provisions of the old Companies Act No. 61 of 1973 (the old Act), with a modern business rescue regime. Chapter 6 of the new Companies Act introduces proceedings to rehabilitate companies that are financially distressed. The aim is to maximise the chances of these companies’ continued existence.
The business rescue process culminates in the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity. The business rescue plan’s objective is to maximise the likelihood of the company continuing in existence on a solvent basis. In the event that this is not possible, the implementation of a business rescue plan should result in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company. In terms of Chapter 6 of the Act, business rescue proceedings (BRP) are largely self administered by the company under the independent supervision of an appointed business rescue practitioner (practitioner).The entire process is also subject to court intervention by way of application by any affected person (i.e. creditor, shareholder, employee or trade union).
Since 1 May 2011, various applications to Court have been made for the appointment of practitioners. However, due to the delay in the licensing of such practitioners have resulted in many applications being dismissed by the High Court. The Act specifically refers to practitioners being appointed from the legal, accounting and business turnaround profession. Practitioners must also obtain a licence in order to be appointed.
The Companies and Intellectual Property Commission ("the Commission") are currently granting interim licenses to appropriate applicants to execute Business Rescue proceedings for a limited period and which will relate only to each specific company. While this appears to have resolved the issue of appointments, it remains unclear as to the basis on which the Commission will in fact grant permanent licenses to practitioners.
In terms of the provisions of Chapter 6 of the Act, there are several areas of concern which have been highlighted in this article.
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