A critical discussion of the requirements of business rescue in terms of the Companies Act 71 of 2008.

Abstract

Despite business rescue being approximately ten–years–old with several court judgments available in South Africa, certain legal terminology in the Companies Act 71 of 2008 (‘the 2008 Act’) are still ambiguous. This study includes an overview of the old administration to emphasise that the issue could have been resolved in the 2008 Act. Under the novel regime, it is the task of the business rescue practitioner to temporarily administer the assets and dealings of the business by restructuring the business, property, debt, other liabilities, and equity (section 128(1)(b)). The objective would be to either emerge from the process solvent or a better return for creditors (or immediate liquidation as a final route). However, the two built-in requirements, namely, the company must be ‘in financial distress’, and there must be a 'reasonable prospect’ of success, is unclear as the 2008 Act does not provide what standard of proof is required in these instances. Accordingly, this study analyses the two gateways into business rescue and the abovementioned requirements to begin the process. It is suggested that the general moratorium and post-commencement finance and the implications in practically executing the statutory obligations be considered concurrently. Thereafter, this study includes a discussion on South African Airways, the first state-owned entity to be placed under voluntary business rescue on 5 December 2019. The study concludes by recommending methods that the court and a business rescue practitioner could utilise in interpreting the requirements for the process to be more effective. For example, the courts and a business rescue practitioner may use a pre-assessment for determining ‘financial distress’ together with financial and cash-flow ratios. For ‘reasonable prospect’, a pre-assessment is recommended, as well as an opportunity analysis (OA) and a ‘do we have a business?’ test (DWaB test).