Compulsory Liquidation:

A provisional winding-up order is usually issued in the form of a rule nisi. Interested parties are invited to appear on the return date and advance reasons for the final order not to be issued. If no such reasons can be given, the court will proceed to issue the Final Liquidation Order.

The company will no longer be under the control of its members or directors but rather vest in the Master of the High Court and then in the appointed liquidators. Transfers of shares after Liquidation are void. Change of status of Company or the members without approval of liquidator is void. Disposition of property, including claims after commencement of Liquidation is void; and all legal processes are suspended.

WHAT IS BUSINESS RESCUE?

Business rescue is a process that is designed to save a company from being shut down. South Africa’s business rescue process is set out in Chapter 6 of the Companies Act. Business rescue, aims to facilitate the rehabilitation of a company that is “financially distressed” by providing for: the temporary supervision of the company and management of its affairs, business and property by a business rescue practitioner. During the business rescue process, the practitioner attends to an investigation into the financial affairs of the company and produces findings, which assist in the determination as to whether or not there is a reasonable prospect of rescuing the company. The practitioner has to show that the business rescue will result in a better return for creditors and other affected parties than an immediate Liquidation.

BUSINESS RESCUE PROCESS

Same as in Liquidation, there are two ways in which a company can be placed into business rescue, namely – when the board of directors resolves that the company voluntarily commence business rescue proceedings or when an affected person makes a formal application to the High Court for an order placing the company under supervision and commencing business rescue proceedings.

The effect is that there is a temporary moratorium (“Stay”) on the rights of claimants against the company or in respect of property in its possession. The practitioner develops and implements (if approved) a business rescue plan to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity. The following gives a brief overview of the two processes.

Voluntary Business Rescue:

A board resolution may not be adopted if Liquidation proceedings have been initiated by or against the company; and has no force or effect until it has been filed. The board resolution is filed with the Companies and CIPC, together with the required supporting documents for filing for rescue. On the day that the resolution and all the supporting documentation is emailed to the relevant address at the CIPC – the company is considered to be in business rescue.

Compulsory Business Rescue:

Business rescue commences when an affected person makes application to court for the commencement of business rescue or when the court grants a business rescue order. The court may order that the company to be placed under supervision, to begin business rescue & appoint an interim practitioner. A copy of the application must be served on the company and each affected person must be notified of the application.

CONCLUSION

Different situations might call for either Business Rescue or Liquidation proceedings. Not all companies can be rescued; a successful Business Rescue is where the company continues to remain in existence on a solvent basis or where creditors receive a better return compared to the immediate Liquidation of the company.

By Pretty Tshirangwana, Bernd and La Vita Incorporated, 13 July 2020