Companies will only survive by adjusting to the changing environments

However, the Companies Act 71 of 2008 (the “Companies Act”) still does provide helpful tools for directors to apply in these times, one of them being the application of the solvency and liquidity test. Directors must still be satisfied that the company will be able to pay its debts as and when they become due and payable in the ordinary course of business. This test must be applied more carefully and prudently, especially now.

Although most major corporations will have no issues in sustaining themselves through this pandemic given their deep pockets, the same may not be so easy for companies who may directly rely on their corporate survival through healthy sales, debtors honouring payment timelines and other liquid assets which are kept flowing.

However, panic and chaos need not be the order of the day. Directors have a lot more power and tools at their disposal in order rescue their business in these troubled times. Enter business rescue proceedings.

Business rescue proceedings are proceedings aimed to facilitate the rehabilitation of a company that is financially distressed by providing for the temporary supervision of the company. The company is able to reorganise its affairs with the assistance of an independent practitioner with turnaround management competencies. The major benefit of business rescue proceedings is that there is a temporary stay on the rights of claimants to enforce any actions.

This is not the eventuality envisaged by our state leaders and directors are therefore encouraged to consider section 129 of the Companies Act in passing a resolution to commence business rescue if it believes that the company is financially distressed (i.e that it will not be able to pay its debts as and when they become due and payable in the ordinary course of business).