Business Rescue

Question 1

Business rescue?

Answer 1

Trying to rehabilitate an insolvent company being putting it under temporary supervision, and developing a plan to rescue the company by restructuring its affairs

Question 2

Two possible results/ outcomes from a business rescue

Answer 2

1. Business rescue is successful and the company continues on a solvent basis
2. Business rescue results in a better return for creditors compared to if the entity had not under business rescue and been liquidated immediately.

Question 3

Business rescue is an “ informal liquidation process”

Answer 3

FALSE. If the business rescue is treated as an informal liquidation process then the entity will be circumvented from consequences

Question 4

The board wants to place the entity under business rescue. What are the requirements for the board to voluntarily begin business rescue proceedings and place the company under supervision

Answer 4

Board has reasonable grounds to believe:
1. The company is financially distressed
2. There is a reasonable prospect of rescuing the company.

Question 5

When can a company be considered finally distressed

Answer 5

1. The company will be unable to pay all debts that will be due in the next 6 months
2. It appears the company will become insolvent in the next 6 months

Question 6

After the Company comes to the resolution to voluntarily place the company under business rescue.

The first thing the company must do?

Answer 6

1. File the resolution with the commission (CIPC)
2. Publish a notice of the resolution to all affected persons within 5 business days
3. Appoint a practitioner within 5 business days
4. File a notice of appointment with CIPC within 2 business days
5. Publish a notice of appointment to all affected persons 5 business days of the appointment.

Question 7

Affected person

Answer 7

shareholder, creditor, any registered trade union representing employees

Question 8

Before the business rescue plan is adopted can an affected person apply to the court for an order to set aside the resolution and not go through with the business rescue plan?

Answer 8

Yes, but the following requirements must be met:
1. There is no reasonable basis to believe the company is under financial distress
2. There is no resonable prospect of resucing the company
3. The procedural requirements of

Question 9

If an affected person notices that the resolution to put the business under business rescue does not conform with the requirements of Sec 129 should they apply to the court for an order to set aside the resolution

Answer 9

No as the resolution will be voided anyway if it does not conform with the requirements

Question 10

What if the affected perosn is not happy with the appointment of the practitioner.

Answer 10

A court order to set aside the practitioner can only be considered if the practitioner

Question 11

The company’s and affected persons interests must be considered

Answer 11

TRUE

Question 12

Can an application be made to to have the practitioner provide security to secure the interests of the company and affected person.

Answer 12

TRUE

Question 13

So, lets say the company is under financial distress but the board did not take the resolution to have entity put under business rescue

• What can affected parties do?

Answer 13

Affected parties will have the opportunity to apply to the court for business rescue or commence liquidation proceedings ( Voluntarily or otherwise)

Question 14

Are there consequences the board can face for not putting the company under business rescue?

Answer 14

Yes the board can face civil liability

(Civil actions, Liability of directors)

Question 15

So lets say the company was not put under business rescue by the board but is financially distressed and can not pay its debts, what will happen

Answer 15

1. Company will be put under business rescue by court order
2. Company will be liquidated due to being unable to pay its debt
3. Company is out under business rescue by court order
4. Company will be liquidated.

Question 16

Unlike a voluntary entry into business rescue, the court order to put the Company into business rescue can be began after the company has already began liquidation proceedings

Answer 16

TRUE

Question 17

The practitioner may remove from office any person who forms part of the pre-existing management of the company ORRR may appoint a person as part of the management of a company

Answer 17

TRUEEE

Question 18

Removal from office is termination of an employment contract

Answer 18

No, not unless under sec 136 of the companies act

Question 19

Who does the practitioner need to inform that the company has been placed under business rescue?

Answer 19

1. All revelavnt regulatory authorities who have authority in respect of the activities of the company.

Question 20

Who decides the renumeration of the practitioner

Answer 20

The minister under section 143

Question 21

Employee was owed an amount prior to the start of business rescue proceedings and was not paid

Answer 21

Employee then treated as a creditor ( Right of employees)

Question 22

The preferences of … creditors are not taken into account

Answer 22

concurrent/ subordinated

Question 23

If the business plan alters the rights of any class of holders of the companys securities, what must happen

Answer 23

1. A adoption by the creditors is preliminary
2. The practitioner must then immediately hold a meeting for those who would be affected. ( AND CALL FOR A VOTE TO APPROVE THE ADOPTION OF THE PROPOSED business rescue plan )