10) Corporate Failures and Winding Up

Question 1

What is business Rescue?

Answer 1

Restructuring undertaken in a manner that maximizes likelihood of the company continuing in existence on a solvent basis (Primary goal of business rescue)

• If not achieved or possible then the next goal is to obtain a better return to creditors and shareholders than would result in immediate liquidation of the company.

Question 2

What is a ‘Financially Distressed’ Company?

Answer 2

If it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing 6 months

Or if it appears to be reasonably likely that the company will become insolvent within the immediately ensuing 6 months

Question 3

What are the two ways a business can go into business rescue?

Answer 3

Board resolution

• The company places itself under business rescue, this has to be filed to show moratorium

Court order

• Either an application made by an ‘affected person’ or on its own initiative

Question 4

Who are ‘affected persons’?

Answer 4

Shareholder of the company

Creditor of the company

Trade union representing employees of the company (where no trade union, individual employees/representatives)

These aren’t just any stakeholders - this is defined in the act

Question 5

What are the principles related to the commencement of business rescue by Board Resolution?

Answer 5

Board must have reasonable grounds to believe that:

• The company is ‘financially distressed’, and there appears to be a reasonable prospect of ‘rescue’ (liquidation proceedings must not have been initiated)

Question 6

What are the principles related to the commencement of business rescue by Court Order?

Answer 6

Affected person/s must show that:

• Company is financially distressed

OR

• Company has failed to pay an obligation under or in terms of a public regulation, or a contract, with respect to employment-related matters

OR

• Otherwise just and equitable to do so for financial reasons AND there appears to be a reasonable prospect of rescue

Question 7

What are the principles related to the business rescue practitioner?

Answer 7

Appointment

• Company if commencement by board resolution
• Otherwise, affected person who obtained BR order

Duties

• Formal duties
• Fiduciary duties

Powers

• Full management control
• Remove/appoint directors and management
• Suspend contractual obligations that the company was party to at commencement, that would become due during business rescue; or apply to court to cancel such agreements.
• Exceptions: employment contracts (employee interest protection) and Insolvency Act