A South African perspective of business rescue abuse: protecting the sanctity of the business rescue process without losing sight of its purpose.
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Date
2021
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Abstract
The current Companies Act 71 of 2008 (the Act) signaled a move away from a creditor-protectionist
society and toward a debtor-protectionist business rescue model. As a result,
applications have sprung up to take advantage and abuse this new rescue procedure.
Unfortunately, this change has led to the widespread misuse and abuse of the business rescue
process.
Essentially, business rescue finds refuge in the Companies Act 71 of 2008 Chapter 6 (the Act).
It offers a restoration mechanism to companies in financial distress. When done correctly, the
business rescue procedure provides a much-needed ‘win-win’ situation for all parties involved.
However, when a company cannot be rehabilitated, the secondary goal of the business rescue
procedure is to achieve the best possible outcome for the creditors.
Unfortunately, there are two sides of the coin when it comes to business rescue proceedings.
Business rescue is used as a means to frustrate creditors from exercising their rights.
Unfortunately, in the economic aftermath of the COVID-19 pandemic, more and more
companies will resort to business rescue proceedings as a means to seek refuge from creditors
even if the facts do not justify this.
This dissertation raises difficult questions of how the statutory framework governing business
rescue procedure is open to abuse and whether it sufficiently protects creditors from
exploitation without them having to resort to our courts for recourse. While business rescue
envisages noble objectives such as ensuring the continued existence of a financially distressed
company, the preservation of valuable jobs, and so on, the abuse of the process often results in
creditors being left out of pocket which needs to be addressed by the legislature. Furthermore,
this dissertation will provide recommendations on how the Act needs to be rectified to protect
it from abuse and preserve its sanctity of the Act.
Description
Masters Degree. University of KwaZulu-Natal, Pietermaritzburg.