Neill Hobbs, an Accountant at Hobbs Sinclair, has seen the effects of the new Companies Act from the perspective of a business rescue practitioner -and they’ve convinced him that the amended legislation is a boon for companies.
“The provisions around business rescue are the most innovative part of the Act,” he says. In the past, a company trading under insolvency would face few options: chances were that a bank would take its assets. The new rules create a very different set of circumstances: the board must meet to see if the company will be able to honour its obligations for the next six months. If it can’t, the organisation must stop trading and either liquidate itself or apply for business rescue. If it chooses the latter route, a practitioner approved by the Companies and Intellectual Properties Commission will be appointed to take over as the CEO, with the board reporting to this individual. No legal action may be taken against the company during this time.
The practitioner must compile a timeline for the business rescue, which will be presented to the shareholders, directors and employees for approval. Importantly, the company won’t be held responsible for any liabilities that aren’t already mentioned in the business plan.
Business rescue presents an entirely new way of doing things, explains Hobbs, as in the past it was the shareholders who controlled the company. If the organisation was ailing, they were within their rights to take the remaining assets and decide what to do with the leftovers. Under business rescue, however, they have no such authority; an independent third party makes these decisions. Hobbs believes the new system is “brilliant” -although he admits that many of the other provisions are somewhat complex. “Directors today require an extra level of skill: they need to be able to implement the Act, so they must be familiar with company law. What’s more, if they have to vote on a matter, they need to be knowledgeable about it. The spirit of this law is very good, but it does mean that if you’re not [informed about] company law and don’t have access to specialist advisers who can tell you what you need to know about matters affecting your organisation, you should think twice about accepting a directorship.”
For more information on the new legislation, visit: www.cipc.co.za/Publications_files/Companies Act Guide.pdf