It is an unfortunate fact that the success rate of business rescue proceedings in South Africa is very low. To improve the chances of a business being successfully rescued it is vital that a competent and experienced Business Rescue Practitioner be appointed.
The main purpose of business rescue proceedings is to facilitate the rehabilitation of a financially distressed company by restructuring its affairs, business, property, debt and other liabilities in a manner that maximises the likelihood of the company continuing its exitance preventing the possibility of liquidation Another major purpose of business rescue proceedings is to preserve jobs and generate a return for creditors and shareholders that is usually higher than if the company were liquidated.
Section 128(1)(d) of the Companies Act 71 of 2008 defines a Business Rescue Practitioner as “a person appointed, or two or more persons appointed jointly, to oversee a company during business rescue proceedings.” A Business Rescue Practitioner can be appointed by the company’s board of directors or by court order.
Section 138 of the Companies Act defines the legal requirements in order for a person to be appointed as a Business Rescue Practitioner:
- A member in good standing of a legal, accounting or business management profession accredited by the CIPC.
- Licensed by CIPC in terms of subsection (2)
- Not subject to an order of probation in terms of section 162(7)
- Not disqualified from acting as a director of a company in terms of section 69(8)
- Does not have any otherrelationship with the company such as would lead to a reasonable and informed third party to conclude that the integrity, impartiality or objectivity of that person is compromised;
Is not related to a person who has a relationship contemplated in subsection (d)
In addition, Section 140 of the Companies Act sets out the main duties of a Business Rescue Practitioner being that they have full management and control over the company. To this end, they should have the ability to effectively:
- Understand the affairs of a financially distressed company.
- Formulate a viable business rescue plan.
- Execute a well-prepared business rescue plan and ensure compliance with the relevant legislative requirements of the plan.
The Business Rescue Practitioner must prepare a business rescue plan in accordance with the provisions of Section 150 of the Companies Act, 71 of 2008 to be approved by the requisite percentage of creditors with voting interest to ensure that the plan is effectively implemented.
It follows then, that a financially distressed company should appoint a Business Rescue Practitioner that has exceptional business management skills – who is innovative and can strategise creative and practical ways to turn the company around. On these aspects and competencies, the Companies Act of 2008 is less clear.
The ideal Business Rescue Practitioner should possess “soft skills” that are key to supporting the practical and legal duties – this includes skills such as sense-making, decision-making and integration.
is a critical part of investigating the affairs of the business and providing a feasible and viable analysis of the affairs of the distressed enterprise. This skill requires a high-level of instinctive capacity. The Business Rescue Practitioner should be good at quickly analysing information, identifying patterns and making accurate judgement calls.
Once the Business Rescue Practitioner has made sense of the business, critical decisions need to be made at different phases of the rescue proceedings. This means that the Practitioner should have the ability to invoke problem solving techniques, analyse scenarios, select options and make quick, accurate decisions, sometimes with limited information at their disposal.
Finally, the Business Rescue Practitioner must be adept at integrating a financially distressed company, because there will often be a number of loose ends to tie together.
The success of business rescue proceedings depends significantly on the qualities and skills of the Business Rescue Practitioner. Therefore, it is crucial for a company to appoint a practitioner who possesses the necessary knowledge, skills, and experience, as the level of expertise directly influences the success of these proceedings.
Article by Eloise Cilliers | Senior Associate and Yonwabisa Matshoba | Candidate Attorney
