Chapter 6 of the Companies Act, is some of the best and most progressive legislation drafted in our Republic. It serves a noble purpose, is easy to read, flows logically and was a very good foundation for our journey ahead. We have scanned Chapter 6, and you should reference it as you go through the summarized process that follows. As a reflection of the quality of the thinking in the Act, observe how it starts with definitions in section (128), and then from section (129) (working sequentially through the Act to Section (150), which dictates the minimum requirements of a Business Rescue Plan), it ends at section (155). This is after the sections on adopting or failing to adopt the plan (153), with the obvious and logical section (155) on reaching compromises between the company and its creditors. If only all our legislation was like this!
Just to make sure we are clear, here is a very brief overview of Business Rescue Process.
For your convenience, here is a scanned pdf of Chapter 6 of the 2008, Companies act
Here is an excellent site with the different sections of the Company ACT, especially if you do not wish to labour through the pdf. Here's Chapter 6 of the 2008, Companies act Part A
| Step or Event | Description | Timing | Comments |
|---|---|---|---|
| Business faces Headwinds | We can write a book on the reasons for decline, but the law is very progressive and is there to give you a chance to recover and to redeem yourself. Bad luck, defaulting Accounts Receivables, a Tsunami in Japan, a terror attack in New York, these things happen. You have much more support than you think and you must persevere, the country needs you. We'll get through this! | Slowly over a long period of time and then very suddenly | Act sooner rather than later, even if it is just to have a quiet chat, which costs you nothing. |
| Business becomes Financially Distressed | as per the definition mentioned earlier | A time horizon of 6 months is used | The business faces liquidation. |
| Applies for Business Rescue Protection | Voluntarily by Board
resolution or Involuntarily by Court Order as a result of an affected party making application |
NB: If this is voluntary, then you most likely need to request a business rescue practitioner to assess the prospects of rescue, not doing this eats into limited time. The rescue plan should be well progressed conceptually before the court filing! | |
| Enters Business Rescue Formally | an affected person applies to the court requesting company be placed under supervision. Section 131(1) of the 2008 company act is applied. or during liquidation proceedings court itself places the company under supervision. Section 131(7) of the 2008 company act is applied. or in the proceedings to enforce a security interest the court itself places the company under supervision, again Section 131(7) of the 2008 company act is applied. or the company based on a board resolution files with the court to place itself under supervision. Section 129 of the 2008 company act is applied. or an application is made by the company itself in terms of Section 129 of the 2008 company act |
On condition
that the company is actually financially
distressed and there appears to be a reasonable prospect of rescuing the company. (Which you would be wise to have confirmed well in advance!) |
|
| Business Meets Entry Conditions (Provisions) to Business Rescue Status | Formally appoint a
business rescue
practitioner who
satisfies the requirements of section 138, The Business Rescue practitioner must provide consent in writing in accepting this appointment. Publish a notice of the resolution, and its effective date, in the prescribed manner to every affected person |
within 5 business days | Please refer to note below
on qualifications of the
Business Rescue Practitioner. If the company fails to meet the provisions, and its filing lapses, it may not file another resolution for 3 months. |
| Formulate Business Rescue Plan | There
is no prescribed
methodology for the Business Rescue Practitioner to follow and quality
of the rescue plan is primarily driven by the dominating
constraint imposed by the 25 days allocated for the entire process: A
longer period can be granted by the court. The Company act is quite
clear on what the business rescue plan should contain, and the basic
structure of the document - Section 150. We deal with this in the
deliverables page in detail Click here for what you can expect from Spark! You will receive a 50% discount on fees if you can prove that any other practitioner does a more comprehensive plan than us. Use the template provided for comparison purposes. |
25 days with the court having a mandate to optionally extends this at time of filing. you have very little time to conduct a real rescue analysis. Hence the wisdom in consulting your Business Rescue Practitioner in advance to confirm | Plan well and engage your Business Rescue Practitioner sufficiently early, and the 25 days will be fine - there are obvious benefits to a speedy resolution. |
| Business Rescue Plan is ratified or rejected | Business Rescue planning
success is
driven by good content, in which creditors have confidence of the
forecast outcome, this requires understanding of the financial
numeracy. Advisers on benefits, valuations need to be
demonstrate a working knowledge of (and superior communication skills regarding): - WACC - discount rates - NPV & IRR - probability density functions - Discounted Cash Flows - Expected Value |
Usually within 25 days - 3 months | If this is attended to,
then time wasted on red-herrings and needless debate is minimized. This
is VERY important. |
| Business Rescue Ends after Plan Rejection | No affected person has
acted to extend proceedings The Business Rescue Plan has been presented and rejected The Business Rescue Practitioner files a notice (Form CoR125.2) of termination |
||
| Business Rescue Ends after Plan Ratification | The Business Rescue Plan
has been adopted The plan has been mostly or completely implemented and the Business Rescue Practitioner has subsequently filed a notice of substantial implementation of the plan (Form CoR125.3). |
||
| Business Rescue Practitioner Qualifications, note more than one can be appointed. | 1) In each instance of
appointment the Business Rescue practitioner needs to make an
application
to the minister, a license is required for each and every appointment
of the Business Rescue Practitioner- Form CoR 126.1 2) the criteria for licensing are: -The member is in good standing with a legal, accounting or business management profession accredited by the Commission - Is not subject to an order of probation - Would not be disqualified from acting as a director of the company - Does not have any other relationship with the company that might undermine their integrity, impartiality or objectivity -Has no interested family members involved -Is of good character and integrity; -and their education and experience are sufficient to equip them to perform their functions |
The pages after this deal with the
important matter
of the Generating the Business Rescue Report into a viable plan with a
decent chance of getting adopted!
