How business rescue proceedings will aid a company in remaining afloat during the Covid – 19 pandemic

There are several special benefits that Chapter 6 provides for a company in rescue as a mechanism to financially rehabilitate itself or produce a better return for creditors than the immediate liquidation thereof:

• there is a general moratorium, or suspension, of legal proceedings against the company during business rescue. This means that employees, shareholders or creditors cannot enforce their claims or disputes against the company except if the court grants leave or the appointed business rescue practitioner (the “Practitioner”) grants such consent in writing to a claimant. This means that property interests are protected as the rights of creditors in respect of property in possession of the company are suspended;
• the Practitioner can suspend specific onerous contracts of the company and may even apply to court for their cancellation on just and reasonable grounds;
• employees are classified as preferred unsecured creditors, which means that any remuneration that becomes due and payable to them during business rescue proceedings will take preference over all other secured and unsecured claims against the company;

The second leg on which business rescue is built on is that is achieving a result for creditors which is more favourable than the immediate liquidation of the company. In order to achieve this, the company continues its operations during business rescue; Under section 129 of the Companies Act, the board may resolve that the company voluntarily begins business rescue proceedings and agrees to place the company under supervision, if they have reasonable grounds to believe that –

1. the company is financially distressed; and
2. there appears to be a reasonable prospect of rescuing the company.

Directors must be aware that the company under their control does not operate in isolation to the greater economy and every due care and diligence is required to ensure that businesses remain afloat during these challenging times. The continued trade of companies is key to the maintenance of a healthy economy, but this can only be achieved under the right supervision and a suited turnaround plan.