In a challenging business landscape characterized by uncertainty and financial challenges, many companies grapple with issues such as the risk of insolvency and the difficulty of maintaining adequate cash flow for operations. Despite these obstacles, there is a silver lining comes in the form of business rescue.

Under the Companies Act of 2008, companies have the option to undergo business rescue—a legal process designed to rehabilitate financially distressed companies, enabling them to restructure and regain stability. The primary aim of business rescue is to provide companies with an opportunity to restructure their affairs in order to afford an opportunity to continue their business on a solvent basis and to avoid liquidation, safeguarding stakeholders’ interests, and enhancing the likelihood of the company’s survival.

The business rescue process provides a platform for the business to rehabilitate, which typically unfolds in multiple stages, starting with the initiation of business rescue proceedings and the appointment of temporary supervision of the company by a qualified business rescue practitioner. This business rescue practitioner plays a crucial role in assessing the company’s financial situation, crafting a rescue plan, and obtaining approval from affected parties. For struggling companies, engaging with an experienced business rescue practitioner is essential for navigating this process effectively.

As the main purpose of business rescue is to rehabilitate a company, there are multiple advantages that arise from the process. These advantages include:

• Avoidance of Liquidation: Choosing business rescue signals a company’s commitment to recovery, steering clear of the dire consequences of liquidation, including job losses, financial distress for stakeholders, and reputational damage. The process is reasonably cost-effective and keeps the path open for a more promising future.
• Assistance with Creditors: Entering the independent business review stage signifies hope for a turnaround. Business rescue facilitates the creation of arrangements with creditors, reducing costs and effectively addressing industry challenges. Successful outcomes can lead to improved returns for creditors through optimal utilization of company revenue and assets.
• Financial Restructuring: A significant benefit of business rescue is the ability to restructure debt and liabilities. Companies can renegotiate contracts, develop repayment plans, and address financial obligations aligned with their current capabilities.
• Operational Restructuring: Business rescue further provides an opportunity for companies to assess and overhaul their operations, involving cost-cutting measures, process optimization, and strategic realignment to enhance efficiency and competitiveness.
• Stakeholder Collaboration: Encouraging collaboration among stakeholders—creditors, employees, suppliers, and shareholders—business rescue leverages collective efforts to develop and implement a successful rescue plan.
• Preservation of Employees and Assets: As outlined by the Companies Act of 2008, business rescue offers a potential solution for preserving employment and employment opportunities. A successful rescue ensures the continuity of existing employment, contributing to a healthy operational status that enables the company to meet its financial obligations.

Business rescue should be embraced as a vital tool to protect the interests of all stakeholders in financially distressed companies. It can help businesses avoid liquidation, collaborate effectively with creditors, provide comprehensive solutions to their problems, and achieve long-term viability. Embracing business rescue can thus save jobs, protect stakeholders’ interests, and pave the way for sustainable recovery. While it demands patience and upfront funding, business rescue holds the potential to lead a struggling company to a successful recovery, securing the future of the company, its employees, and the broader economy. If your business is facing financial distress, consider exploring business rescue as a viable option for a brighter future. Embrace the potential of business rescue to transform your struggling company into a success story.

By Larissa Kotzee (Candidate Attorney) and Azraa Hoosen (Candidate Attorney) | Litigation Department