Business rescue debt counselling | Credit Rehab

Business rescue debt counselling

– What is it and how can it assist my company?

business rescue debt counselling
You need a plan, and you need it fast. Is business rescue debt counselling the answer?

 

The patient is critical….Cash flow is low and morale as well, you’re stuck in debt circle you can’t get out of. You are in business debt hell… You need rescue. Make the call.

According to the Act, ‘business rescue’ are measures taken to enable the rehabilitation of any company that is “financially distressed”. To undergo business rescue debt counselling successfully, you need a great debt review firm.

‘Financially distressed’ means that it looks like the business will be unable to pay off its debts within the next six months and/or that the company might become insolvent in that same time period.

Business rescue debt counselling has a few solid benefits

The first advantage of business rescue debt counselling is that the company and those in charge of its affairs, such as property and the business itself, are placed under supervision for a temporary period.

The second advantage during the business rescue debt counselling process, is that any legal right any claimants have against the company, or rights claimants have on property, is suspended.

The third advantage of business rescue debt counselling is setting up a business rescue plan  for the company which needs to be approved and then implemented. According to the sixth chapter of the Companies Act, the plans purpose is to rescue the company from two things by ‘restructuring’ its affairs, including its debt.

The first main objectives of a business rescue plan is to improve the chances of a company remaining a viable entity, and continuing its operations. The second being to lessen the repercussions and loss of income that will occur for the company and its shareholders, if it is discovered that the company is heading for liquidation.

So metaphorically, when it comes to business rescue debt counselling, the first prize is to save the victim from his/her wounds and help him/her to recover completely, while the second option is more about limiting damage to organs in order for them to benefit someone else once the patient flat lines.

When it comes to a business entering the debt counselling process you will be right in assuming that there are many people affected by the process.  Luckily, the Companies Act names those ’affected person’ in relation to a company, as follows:

  • A person who is either a shareholder or a creditor of the company
  • A registered trade union which formally represents the companies employees
  • Any company employee that isn’t represented by any trade union
business rescue debt counselling
Commencing business rescue debt counselling may alleviate many of the fears and worries you currently have to deal with.

How does the initial stages of business rescue work?

Companies who undergo business rescue debt counselling are usually under supervision by a business rescue practitioner during the process. Two people are usually appointed to oversee proceedings and in other cases, it’s a company that may be appointed.

A board of a company may volunteer to commence with business rescue proceedings and to officially place the company itself under supervision.

This can be done if the board of the company believes that the company is actually ‘financially  in distress’ or if it looks like there might be a way to rescue the company from liquidation. Companies can only take this voluntary step if measures of liquidation haven’t already been initiated against them.

Also,  a company also has to adopt the motion and actually file for business rescue, which is a procedure in itself. Five days after filing a resolution of business rescue, the company must “publish a notice of the resolution…,its effective date, in the prescribed manner to every person who is affected, including with the notice a sworn statement of the facts relevant to the grounds on which the board resolution has been founded,” according to the Companies Act.

The next step is appointing a business rescue practitioner who has to consent in writing to the appointment.

Within two business days of making the appointment, the company must also file a notice of the appointment of a practitioner and “publish a copy of the notice of appointment to each affected person within five business days after the notice was filed.”

Once the company has filed for business rescue proceedings to begin, they can’t decide to go the route of liquidation until the business rescue process is completed.

Before a business rescue plan is adopted however, there is some wiggle room and any ‘affected person’ as defined previously in this article, has the right to apply for a court order to set aside the resolution, on the grounds that there is no way of actually rescuing the company, or that proper procedure hasn’t been followed.

Two other ways that a company can be placed under business rescue is by court order, either when a person applies for a court order to place the company under supervision themselves, or during the process of liquidation or proceedings to enforce a security interest when a court orders the company under supervision.

What does a business rescue practitioner do?

A business rescue practitioner will consult with creditors and all other affected persons including the management of the company to complete a business rescue plan which must be considered by all affected persons who can either reject or accept the plan.

According to the Companies Act, ‘The practitioner must convene and preside over a meeting of creditors and any other holders of a “voting interest”, called for the purpose of considering the proposed rescue plan within 10 business days after the publication of that plan in terms of section.’

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The practitioner, after consulting the credit providers and other affected individuals, and the management of the company, must prepare a solid business rescue plan for consideration and possible adoption at a meeting.

The Act further states that once a company has adopted a business rescue plan, “a creditor is not entitled to enforce any debt owed by the company immediately before the beginning of the business rescue process, except to the extent provided for in the business rescue plan.”

The board of a company may then enter into procedures to reach compromise with its creditors and all other affected persons.

Once agreement has been reached, the plan must be published “by the company within 25 business days after the date on which the practitioner was appointed,” the Act states.

This plan, once adopted, is then binding on the “company, and on each of the creditors of the company and every holder of the company’s securities.”

As soon as substantial parts of the business rescue plan has been implemented, a business rescue practitioner must file “a notice of the substantial implementation of the business rescue plan.”

Business rescue ends when the resolution to undergo the process is either set aside by a court of when the process is converted to liquidation proceedings or when a rescue practitioner has filed “with the Commission a notice of the termination of business rescue proceedings” or when a rescue plan has been rejected and no affected person has taken measures to prolong proceedings.”

SOURCE: Chapter 6 of the new Companies Act, No. 71 of 2008 (the Act)

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