Introduction to Business Rescue Proceedings · Definition of Business Rescue: Proceedings to facilitate the rehabilitation of a company (or close corporation) that is financially

WebinarIntroduction to Business Rescue

Proceedings

Version 1.0

Prepared by C Klokow

Purpose of Presentation

This presentation does not provide detail of the full business rescue

legislative process and requirements

The presentation is aimed to create awareness of business rescue

as an available option to “save” an ailing business

Legislative Framework

•Chapter 6 of Companies Act, act no 71 of 2008;

•Companies Amendment Act, act no 3 of 2011; and

•Companies Regulations, 2011

Mandate and Purpose

Chapter 1, Part B states:-“The purpose of this Act are to –

(k) provide for the efficient and responsible rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders; “

Chapter 6 of the Act 2008 introduces principles relating to corporaterescues which brings us into line with international principles ofturnarounds and corporate rescue as they exist in foreign jurisdictions.

Functions of CIPC relating to Business

Rescue

Manage and record the filing of relevant notices:-

•The accreditation of professional bodies

•Licensing of individuals that meet the criteria of the Act;

•Monitor patterns of compliance

•Promotion of business rescue provisions of the Act and

•Raise awareness

Definition - Business Rescue

Definition of Business Rescue:

Proceedings to facilitate the rehabilitation of a company (or close corporation)

that is financially distressed by providing for:

• Temporary supervision of the company, and of the management of its affairs,

business and property

• Temporary moratorium on the rights of claimants against the company or in

respect of property in its possession

• Development and implementation, and approval of a business rescue plan to

(1) rescue the company by restructuring its affairs, business, property, debt

and other liabilities to continue on a solvent basis OR

(2) If not able to continue, results in a better return for the company’s

creditors or shareholders than liquidation

Purpose of Business Rescue

Purpose of Business Rescue:

Restructuring the business in order for it to continue in existence OR

Better return for the company’s creditors or shareholders than liquidation

Thus business rescue can also

be used as an alternative to

liquidation

Conditions for Business Rescue

Company or close corporation resolves to commence business rescue:

• The board resolves (section 129)

• directors and not the shareholders (company)

• Members (close corporation)

• If reasonable grounds that:-

(1) Financially distressed AND

(2) Reasonable prospect of rescue

• May not be adopted if liquidation proceedings have been initiated

• Court has not issued court documents to start the legal process of placing it into

liquidation

• Resolution has no force or effect until it has been filed

• Company or close corporation may approach court to convert from liquidation to

business rescue (section 131)

If no reasonable

prospect - liquidation

CIPC will confirm date of filing once

minimum legal requirements have

been confirmed

Creditors or other affected parties may apply

to court to place the company or close

corporation into business rescue including

trade unions

Definitions – Affected Person

Affected person:

Any person that is affected by the company and includes:

• Shareholder

• Creditor

• Registered trade union representing employees

• Employees representatives (if no union)

Definition – Financially Distressed

Financially distressed:

It appears to be reasonably unlikely that the company will be able to

pay its debts as they become due and payable within the

immediately ensuing six months

= commercial insolvency

Business Rescue Proceedings Life

Cycle

Procedures to start business rescue

proceedings

Business rescue proceedings begin when:-

(1) the Board passes a resolution that the company voluntarily begin Business

rescue proceedings (section 129); OR

(2) an affected person (shareholder, creditor, employee or organised labour),

applies to court for business rescue proceedings (section 131)

Board Resolves

Entity:

Board Resolves (resolution)

Entity:

Submit CoR123.1

CIPC:

Confirms correctness and

effective date

Entity:

Give notice to affected parties

of commencement

of BR proceedings

Entity:

Appoint BRP

Entity:

Submit CoR123.2

CIPC:

License BRP and confirms

appointment of BRP

Entity:

Give Notice of Appointment of

BRP

5 working days from

resolution

New matters SDS:

2 working days from receipt provided

that minimum legal requirements are

complied with

5 working days from

resolution 5 working days from

resolution2 working days from

appointing BRP 5 working days from

filing CoR123.2

Appointment SDS:

2 working days

CoR123.1 and Supporting Documents

Two sets of information – legal requirements and administrative requirements

Legal documents to be submitted (legal requirements):

• Duly completed and signed CoR123.1

• Affidavit / sworn statement and

• Resolution

• Resolution must state (i) entity is financially distressed and (ii) entity

resolve to commence business rescue

CoR123.1 and Supporting Documents

Administrative documents to be submitted (admin requirements):

• Certified ID copy of owner of the customer code

• Certified ID copy of the director/member undertaking the sworn statement

• Letter from the business stating the PI Score, primary business activities and

nomination of business rescue practitioner and

• Letter from business rescue practitioner declaring his / her capacity to accept

nomination, independence from the business and that not disqualified

Sworn Affidavit

Sworn statement must inter alia contain:-

• Full name, surname and id number of person undertaking the sworn statement

• Reasons for resolution to start business rescue proceedings (what caused the

financial distress or cash flow problems e.g strikes, loss of contracts)

• How the owners aim to rescue the business

• Physical address where most of the business activities in the current financial

year were undertaken

• All legal proceedings the entity is involved in, the nature of such proceedings

and status thereof

Important information

E-mail address: [email protected]

Not advisable to manually submit due to time constraints and ease of contacting customer

Service Standard: 2 working days

Fee: No prescribed fee

Once processed, a stamped copy of the CoR123.1 and other documents will be e-mailed

to person who submitted the application

Enquiries: Must be logged on CIPC website www.cipc.co.za / enquiries

mailto:[email protected]

http://www.cipc.co.za/

Legal Consequences: Non

compliance with notification periods

• Business rescue proceedings commence on the date the application,

consisting of the minimum legal documents, was submitted to the CIPC

• If preceding liquidation proceedings, the resolution to commence

business rescue proceedings are void ab initio

• If no notice of appointment of BRP is provided within stated period, then

proceedings become a nullity

• If resolution and effective date is not published within stated period, then

proceedings become a nullity

• If proceedings became a nullity then entity cannot resolve the commence

business rescue again for another 3 month period

Legal Consequences: Objection to

resolution to commence business rescue

• Any time between adoption of resolution and approval of business rescue

plan, any affected person may apply to court (section 130):-

(i) setting aside the resolution;

(ii) setting aside the appointment of the practitioner; or

(iii) requiring practitioner to provide security

• Director or member who voted in favour of the resolution may not apply to court

to set aside the resolution or appointment of practitioner

Unless proof to court that acted in good faith on basis of information that has

been found to be false or misleading

Once business rescue commence and

business rescue practitioner is appointed, all

management powers are relinquished to the

business rescue practitioner

Legal Consequences: Handing over of

management function to BRP• Each director and member:-

(i) Must continue to exercise the functions of director, subject to the authority of

the BRP

(ii) duty to exercise any management function within the company in accordance with

express instruction or direction of BRP

• Each director must attend to the requests of the BRP at all times, and provide BRP

with any information about the affairs of the business

• Any action that required approval of BRP is void unless approved by BRP

• BRP may apply to court for order removing a director and the ground that director has

(i) failed to comply with requirements of Chapter 6 (Business Rescue Chapter); or

(ii) by act or omission, has impeded or is impeding

(a) the BRP in the performing his powers and functions

(b) the management of company by BRP; or

(c) the development or implementation of business rescue plan

Legal Consequences: General

• General moratorium is affected (section 133)

• Protection of property interest (section 134)

• Employees immediately before beginning of business rescue continue to be so

employed on the same terms and conditions (section 136)

• Labour Laws are not affected and therefore such procedures must be followed in

the renegotiate of conditions of employment and retrenchment

• BRP may suspend any obligation of the company (section 136)

• Cannot suspend employment contract

Nullity

If proceedings became a nullity – letter from BRP stating the reasons for the nullity

Possible reasons for nullity:

• BRP not appointed with required or extended time period

• Publication and notification of starting of BR or appointment of BRP did not

occur in time

• Not all known affected parties were notified of BR or appointment of BRP

• At time of resolution, liquidation proceedings has already initiated

Court Order

Court:

Makes Order to commence BR

and may appoint interim

BRP

Entity/affected person:

Submit CoR123.1 and

Court Order

CIPC:

Process Court Orders

Entity:

Give notice to affected parties

of commencement

of BR proceedings

Entity:

Appoint BRP

Entity:

Submit CoR123.2

CIPC:

License BRP and confirms

appointment of BRP

Entity:

Give Notice of Appointment of

BRP

2 working days 2 working days

5 working days from date of order


Cycle

Assessment of Entity Affairs

• As soon as appointed the BRP must investigate the affairs of the entity

• Directors and members must fully disclose the position of the business to the BRP by

making all relevant documents to the state of affairs of the entity available (section

142)

Outcome of assessment:

• If entity not distressed – CoR125.2

• If entity too distressed – apply to court for discontinuing BR proceedings and

commencing liquidation

• If entity distressed and reasonable prospect to rescue – have meetings with

creditors and prepare BR plan for approval by creditors

Documents to be submitted

If BRP is going to apply for discontinuation of BR proceedings and placing entity into

liquidation, it is not advisable for the BRP to submit CoR125.2 (notice of termination)

• As soon as CoR125.2 is submitted and processed by CIPC the BRP proceedings

terminate and the BRP has no authority to approach the court to finalise the

discontinuation of the proceedings.

Court order - [email protected]







Enquiries: Must be logged on QRS



Cycle

Business Rescue Plan

• BRP, after consultation with creditors, affected persons and management, must

prepare a plan that maximises the likelihood of the business continuing in

existence on a solvent basis OR results in a better return for the business’s

creditors or shareholders

• Plan must then be voted on by creditors and, if applicable, by shareholders

• Plan not adopted, and no affected person took further action to approve plan,

BRP must file a notice of termination (CoR125.2) with CIPC








Enquiries: Must be logged on the CIPC website, www.cipc.co.za / enquiries



Once business rescue plan is approved

(agreement between business and creditors),

the business rescue practitioner implements

to plan based on its provisions which creditors

approved


Cycle

Implementation of Plan

Once plan is approved, the BRP must implement such plan

If BR proceedings takes longer than 3 months, CoR125.1 must be submitted on

month 4 and every month thereafter

CoR125.1 may be accompanied by a more detailed report








Enquiries: Must be logged on CIPC website, www.cipc.co.za / enquiries




Cycle

Substantial Implementation

Once BRP has substantially implemented the BR Plan, CoR125.3 must be submitted

CoR125.3 must be accompanied by the latest PI Score of the entity at the time of

resolving that plan was substantially implemented








Enquiries: Must be logged on CIPC website, www.cipc.co.za / enquiries

