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BUSINESS RESCUE EXPERTS | EXPERT ADVICE | ALL YOU NEED TO KNOW

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BUSINESS RESCUE EXPERTS EXPLAIN:
THE PROCESS AND INTRICACIES OF BUSINESS RESCUE 

Business Rescue Experts noticed that there is a scarcity of the correct information available on the internet regarding the topic.  Business rescue experts soon realised that the business owners were apprehensive about following this process due to their lack of understanding. 

Nevertheless, this may be a viable alternative to preventing your business from declaring bankruptcy. Our experts provide an overview of the basic principles of business rescue, making it an effortless read.

The Business Rescue Process is explained by business rescue experts to companies that are facing financial difficulties. Read more...

What is the Business Rescue Process? 
The process involves the legal restructuring of a company that is facing financial difficulties. This process is typically a sensible option to explore when there is a viable chance of saving the company, rather than resorting to liquidation. 

Understanding the ramifications of business rescue is important for business owners in South Africa, as it provides them with a potential lifeline during challenging times. We aim to assist business owners with a thorough understanding of the process and everything it entails.

In this discussion, Business Rescue Experts provide a summary of a company's creditors' rights and the implications of a business rescue plan.
Companies experiencing financial difficulty rarely know about the different business debt solutions available under South African law.  Business Rescue is only one such solution.  

Directors and company owners who are serious about saving their businesses need to know and understand the implications of Business Rescue to make an informed decision regarding their business and its liabilities.  

It is crucial to conduct thorough research into the various business debt solutions available, such as Business Rescue.
Any business owner who is serious about making his business work needs to be proactive, diligent, and informed about different business debt solutions, such as Business Rescue.  

Cure Debt is a highly knowledgeable and experienced expert in Business Debt Solutions, accredited by the NCR. We are well-versed in all of the available business debt solutions within the South African legal framework.

What is the purpose of placing an over-indebted company under Business Rescue?
It is a legal process with the main goal of assisting in the rehabilitation of over-indebted companies. This is conducted in accordance with Section 128 of the Companies Act, No. 71 of 2008.

How can a company that is in financial distress be defined?
If the company's directors can still recognise its worth in the next six months, it is most likely eligible for business rescue.

For example:  
The company is struggling financially, but they are now wrapping up a contract that will allow them to sort out their finances and recover within six months. If they receive financial support, they will be able to save the company rather than have it liquidated.

Business rescue experts will inform you that delaying the process may be detrimental to your company. This effectively implies that failing to place the business under business rescue in a timely manner could result in the failure of the business rescue application, leaving liquidation as the only viable option.


The Three stages of the Business Rescue process:
Initially, the company, its business, and property, as well as the administration of its affairs, are temporarily under the supervision of a business rescue practitioner.

Following this, creditors receive a temporary delay on their rights.

Lastly, the development and execution of a business rescue plan expedites the rehabilitation process.
If approved, this plan has the potential to restructure a company's business, property, debt, affairs, other liabilities, and/or equity.

Business rescue offers several advantages.
1.
The publication of a business rescue plan aims to restructure and save the business.
2.
The business rescue process is a legal provision that temporarily prevents any claims against the company unless authorised by the business practitioner or approved by the court.
3.
After its commencement, the business seeks finance from banks and third parties. Once obtained, this funding is essential for sustaining the business during the restructuring process.
4.
This process allows for an end to overwhelming debt and provides an opportunity for a new beginning. Though reduced, creditors receive more than they would have received through liquidation.
5.
It provides the option to suspend or cancel unfair contracts.
6.
Directors are shielded from the consequences of reckless trading as the company is entrusted to practitioners, rendering the reckless trading provision obsolete.
7.
The business can be temporarily put on hold, for instance, when Comair planes were stored for a short period until scheduled flights resumed. This helps to minimise costs and allows the company to sustain itself until business operations can resume.

If this is not feasible, the secondary objective is to restructure the business in a way that generates a more favourable return for the company's creditors or shareholders, as opposed to its imminent liquidation.

It is important to recognise that the liquidation of a company and its placement in business rescue are two distinct processes. Business rescue is concerned with the preservation of a company's existence for the benefit of its stakeholders.

Liquidation is the winding up of an insolvent company, in which the rights and interests of creditors are of the utmost importance. A company must be financially distressed and have a reasonable likelihood of rescue to qualify for business rescue.

Nevertheless, it is important to remember that it is not always feasible to restructure and rescue a company in a manner that enables it to resume trading on a solvent basis. Although ideal in most cases, this is not always possible.

Consequently, the business rescue proceedings may entail the sale of certain non-essential assets or departments or the acquisition or sale of the business.

Business rescue can be carried out in two ways: voluntary or compulsory business rescue.

Voluntary Business Rescue
The company's board of directors initiates this process voluntarily by passing a resolution.
The company directors must have reasonable grounds to believe that the company is in financial trouble and that it can be saved.

Compulsory Business Rescue
A creditor can initiate a formal court application to initiate the process on a compulsory basis.
Affected persons include creditors, shareholders, registered trade unions representing employees of the company, or employees not represented by a registered trade union.

Throughout the business rescue proceedings, each affected person enjoys certain rights, including the right to participate in the hearing of an application to place a company in business rescue.

Voluntary Business Rescue Proceedings:
If the company wishes to initiate the process voluntarily, it must:
1.
Within five business days of adopting and filing the relevant resolution with the Companies and Intellectual Property Commission ("CIPC"), publish a notice of the resolution and its effective date to all affected parties, and appoint a Business Rescue Practitioner.
2.
Within two business days of the appointment of a Business Rescue Practitioner, file a notice of appointment with CIPC. Within five business days of filing, the company must publish a notice of appointment for each affected person.

If the company doesn't follow any of these steps, the board's adopted resolution lapses, and unless a court orders otherwise, the company can't file another resolution for three months after the adopted resolution.
Compulsory Business Rescue Proceedings:

If the process begins involuntarily, the applicant is required to serve a copy of the application to both the company and the CIPC. You must notify the affected person about the application.

Based on its review, the court may approve the application.
• The company is currently experiencing financial distress.
• The company has failed to pay an amount in accordance with an obligation.
• It is otherwise just and equitable to do so.

The court must also be of the opinion that there is a reasonable chance of saving the company. If the court grants the order, the company must notify each affected person within five business days of its date.

The Companies Act grants creditors specific business rescue rights. Each company's creditors have specific rights:
1.
Stay informed about all court proceedings, decisions, meetings, and other relevant events pertaining to the business rescue.
2.
Attend all court proceedings that occur during the business rescue proceedings.
3.
Send in the business practitioners' proposals for a business rescue plan.
4.
Every creditor possesses the authority to cast their vote in order to amend, endorse, or decline a proposed business rescue plan.
5.
A creditor's voting interest is contingent upon the value of the funds owed to them.
The Business Rescue Practitioner has the authority to form a creditors' committee and solicit their feedback while creating the business rescue plan.

What is the ramifications of implementing a business rescue strategy
It is essential for creditors to be aware that a business rescue plan, as described above, is binding on all creditors once it has been adopted, regardless of whether the creditor attended the meeting where the plan was adopted, voted in favour or against it, or presented a claim.

An adopted business rescue plan may compromise creditors' claims and debts, leading to their discharge.

Upon the adoption and implementation of the business rescue plan, creditors who have consented to the discharge of all or a portion of a debt in the plan, if permitted, forfeit their right to enforce the debt and creditors.

In addition, creditors are not entitled to enforce any debt owed by the company immediately prior to the commencement of business rescue, except to the extent specified in the business rescue plan, once a business rescue plan is adopted and implemented.

It is important that creditors participate in business rescue proceedings by exercising their voting rights.
Important stages in business rescue proceedings

First creditors' meeting
The initial creditors' meeting should take place within ten business days after the appointment of a business rescue practitioner.   

The meeting has multiple objectives.
During this meeting, the business rescue practitioner is required to provide an update on their assessment of the company's potential for recovery.  They will also be afforded the opportunity to gather proof supporting creditors' claims.

When attending the meeting the creditors make an important decision with respect to establishing a creditors' committee.

The official Business Rescue Plan
Following discussions with creditors and other relevant parties
, the business rescue practitioner is required to develop a business rescue plan.

The public must see this plan within twenty-five business days of the business rescue practitioner's appointment, or sooner if the court or majority of creditors approve it.

Within ten business days of its publication, the business rescue practitioner must schedule a meeting to review the business rescue plan. Prior to the meeting, it is necessary to send a notice to all individuals impacted by it. This notice should include the meeting's date, time, and location, as well as its agenda and a brief overview of the rights of those affected to participate and vote.

A meeting will be called to discuss and vote on the published business rescue plan.

The business rescue practitioner is required to accomplish two things. 

Firstly, they must present the published business rescue plan. Secondly, they need to provide an update on their beliefs regarding the likelihood of successfully rescuing the company.

Facilitate a discussion and a vote on any motions to amend or adjourn the meeting for revision of the business rescue plan; and • Call for a vote to adopt the business rescue plan.

Approving the Business Rescue Plan
To get approval for the business rescue plan, creditors who hold a minimum of 75 percent of the voting interests must support it. Furthermore, at least fifty percent of this 75 percent must come from independent creditors' voting interests, if applicable.

What it the Business Rescue Plan is not approved?
Should the plan not receive approval, it is assumed to be rejected. The majority of voting interests can propose preparing a new plan, or the business rescue practitioner can apply to court to have the vote set aside on the grounds that it is inappropriate.

Upon approval, the business rescue plan becomes legally binding for the company, all creditors, and any holders of the company's security.

In conclusion
The objective of business rescue is to facilitate the effective recovery of financially troubled companies while considering the rights and interests of all involved stakeholders.

It is important to remember that the Business Rescue is a complex legal process, and if not dealt with in a professional and correct manner, it can be a very stressful and frustrating process. Therefore, we recommend consulting with a qualified NCR-accredited business debt solutions expert before proceeding with any debt solution.

CUREDEBT IS AN NCR-REGISTERED DEBT RELIEF SOLUTIONS EXPERT SERVICE PROVIDER.
Steer clear of those that aren't authorised NCR-registered debt relief solutions service providers. It really is that simple. 

Any practitioner specialising in debt relief solutions is required to be NCR-registered because debt relief solutions practitioners are monitored by the National Credit Regulator (NCR).

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Disclaimer: This article is for information purposes only and does not constitute legal advice. Call on CureDebt rather than relying on the information herein to make any decisions. The information is relevant to the date of publication.
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