During the period 2019 to 2022, South Africa experienced devastating events, affecting its economy directly or indirectly. This includes the Covid-19 Pandemic, restrictions, the wave of civil unrest that occurred in South Africa’s KwaZulu-Natal and Gauteng provinces, power outages, water outages, the Russian invasion of Ukraine and the struggling world economy in general.
More than 550 companies filed for Business Rescue in Gauteng between 2019 and 2022 due to financial distress. During the above-mentioned periods, more than 1000 business rescue proceedings were initiated in total throughout South Africa.
According to Section 128 of the Companies Act 71 of 2008, Business Rescue proceedings can be described as proceedings to facilitate the rehabilitation of a company that is financially distressed. These proceedings provide for the temporary supervision of the company and of the management of its affairs, business and property, as well as a temporary moratorium on the rights of claimants against the company or in respect of property in its possession. This provides the company with a temporary breathing space to manage its debts and obligations.
Essential warning signs to consider are major shortcomings of the company to meet its liabilities towards the South African Revenue Service, cash flow problems, delayed payment to creditors, receiving letters of demand from creditors and liquidation notices.
Section 22 of the Companies Act 71 of 2008 provides that a company must not carry on its business recklessly, with gross negligence, with intent to defraud any person, for any fraudulent purpose, or trade under insolvent circumstances.
Directors of companies in financial distress can be held personally liable in some circumstances. Business Rescue procedures provide companies with a chance to be saved before it is too late.
If you need specialist advice on this topic, SD Nel Attorneys can assist with Business Rescue Proceedings and appoint one of our Business Rescue Practitioners to assist with this process.
Written by SD Nel