In today’s competitive economy, many businesses are finding it difficult to stay afloat thus causing financial distress. Such financial distress may be caused by, for example, fewer goods being bought by customers, less need for services being rendered which affect the bottom line of the business or banks refusing to lend capital to assist in the running of a business. As a result of this distress often a business is not able to pay its debts as they become due and payable and the reasonable possibility exists that the business could be insolvent within a period of six months. For some, they may feel that there is no other option but to start liquidation proceedings.The new Companies Act (Act 71 of 2008) has brought hope to these financially distressed businesses with the introduction of business rescue proceedings in terms of Chapter 6 thereof, by providing for the assistance of the rehabilitation of a company that is financially distressed.This assistance could be in the form of:
- providing temporary supervision of the company;
- management of the affairs, business and property of the company;
- placing a temporary hold on the rights of claimants against the company or in respect of property in its possession; and
- the development and implementation of a plan to rescue the company by:
- restructuring its affairs, business debt and liability;
- maximizing the likelihood of the business continuing its existence; and
- ensuring a better return for creditors other than that which would result if the business were to be liquidated.