Introduction

The newly introduced concept of business rescue (in terms of the Companies Act of 2008) has inspired a lot of discussion in the last few months. Cases attracting attention include 1time Airline, Top TV and the lesser-known matter of the Newcity Group, where liquidation proceedings have commenced, as business rescue was refused. These examples, along with a string of other high-profile liquidation proceedings making the news recently, prove − if nothing else − that the business rescue concept is widely misunderstood and consequently abused.

The fundamental principle of business rescue proceedings, as Keith Braatvedt  adequately put it in Without Prejudice (November 2012), is as follows:

“The courts have, unless a proper and motivated business rescue plan is pleaded which demonstrates a reasonable prospect for rescuing the company, consistently dismissed the business rescue application and liquidated the company…. A close scrutiny of the actual rescue platform presented and the rationale mounted on that platform was required in order for the court to determine whether the proper threshold had been met; namely whether the is a reasonable prospect of achieving a rescue through the statutory objectives.”

Therefore, it is common cause that, broadly speaking (among other requirements to be met), when making an application for business rescue, a plan setting out the reasonable prospects of rescuing the distressed company should be submitted. Any application for business rescue brought for the sole intention of delaying imminent liquidation proceedings will, therefore, fail − especially where there is no reasonable prospect of rescuing the company but the plan does not disclose this.

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Written by Nicolene Schoeman-Louw, Schoeman-Tshaka Attorneys