South Africa’s new business rescue legislation is contained in Chapter 6 of the Companies Act No. 71 of 2008 and Chapter 6 of the Companies Amendment Act No. 3 of 2011. The legislation came into effect on 1 May 2011.

Business rescue facilitates the rehabilitation of a company that is financially distressed by providing for the temporary supervision of the company, and of the management of its affairs, business and property by the Business Rescue Practitioner (BRP).

It is the duty of the BRP to formulate a Business Rescue Plan that may include restructuring business affairs, property, debt and other liabilities, and equity, in a manner that maximises the likelihood of the company continuing in existence on a solvent basis.

If it is not possible for the company to so continue in existence, the Business Rescue Plan may envisage a return for the company’s creditors or shareholders greater than would result from the immediate liquidation of the company.

A company can select to voluntarily begin business rescue proceedings by:

• The board of directors passing a resolution to begin proceedings if the board has reasonable grounds to believe that the company is financially distressed and there appears to be a reasonable prospect of rescuing the company. The company therefore goes into business rescue voluntarily.
• An affected person applies to court at any time for an order placing the company under supervision and commencing business rescue proceedings. The company could therefore be forced into business rescue through a court application.
• The company will be required to carry the cost of the business rescue under both the options above; therefore even if the company did not select to be placed under business rescue they are still liable for the costs.