Depending from whose perspective you are looking when it comes to the pros and cons of business rescue, all ‘affected persons’ have a vested interest in the success of the business rescue process. However, some parties may come out on the other side feeling a little hard done by, despite the many possible positives for the business and its creditors that are likely to occur.
Simply put, business rescue is a regulated, legal process to assist or rehabilitate businesses that are in financial distress. PJ Veldhuizen, MD of Gillan & Veldhuizen Inc., a boutique commercial law firm that specialises in dispute resolution, says that since the implementation of the Companies Act in 2011 business rescue has proven to be the more popular course of action over liquidation as affected parties and financial institutions have become more familiar with its workings and methodology, and with the successful outcomes that many companies, large and small, have experienced over the years.
There are various scenarios where a company or its directors might consider the business rescue route:
- The directors consider the company to be financially distressed, or
- the company, an otherwise profitable concern, may be facing liquidation due to cash flow constraints.
Veldhuizen says that it is worthwhile to note that the business rescue practitioner (BRP) works for the company not the shareholders and not the board. “They are not there to save the board – they are there to rescue the business/company – to offer an independent perspective as officers of the court, and they have a legal right to make far reaching decisions as to the way forward for the company, including the replacement of existing management, subject to relevant labour legislation. Be in no doubt, they are in control and are not put in place to do the bidding of any party,” explains Veldhuizen.
Possibly the only unfavourable effect of business rescue proceedings would be the negative publicity and perceptions the company would receive, particularly from financial institutions. The company might have their facilities suspended or be refused post-commencement finance. A company that cannot obtain post-commencement finance to fund working capital is generally not a candidate for business rescue and liquidation is the correct route.
On the other hand, business rescue provides breathing space for a company in distress, where creditors are unable proceed with or implement any legal proceedings pending the outcome of the business rescue or with the business rescue practitioners consent. “Even if a company is found to have passed the point of being successfully rescued, business rescue proceedings enable the appointed practitioner to meet the second possibility of business rescue, i.e. to obtain a better return for creditors than would be the case if the company were to be liquidated immediately – this could be achieved through a sale of assets or an orderly wind down of operations,” confirms Veldhuizen.
In the current Covid environment it would be wise to consider business rescue as a structured, cost-efficient, effective method of returning your business to solvency that will be beneficial to all parties in some way or another, and ultimately achieve a better return than a liquidation.