A South African perspective of business rescue abuse: protecting the sanctity of the business rescue process without losing sight of its purpose.

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.