A Business Rescue Practitioner (BRP) fulfils a few roles within a business he has been mandated to save. Although these are not all governed by law, they are the skills needed to ensure you can properly save the company which has been entrusted to you.
This is to ensure that you can fulfil the aim of business rescue, which is to actually SAVE the company and its business. The basic skills of a BRP can include:
- Knowing the law like a Lawyer.
- Having the numerical skills of an Accountant.
- Understand the intricacies of Change Management.
- Ability to plan and operate like a seasoned Project Manager.
- Having the understanding abilities of a Psychologist.
- Learning the communication skills of the wise old Winston Churchill.
Basically, you have to be a Super Hero is disguise! No jokes…
It is not always possible to have sufficient knowledge in all of these areas so we always call in the experts in each one of those areas where we do not always have sufficient knowledge or skills.
Here is what the Companies Act expects of us as a Business Rescue Practitioner as per Part B Practitioners functions of what is known as Chapter 6 of the Companies Act.
The legal requirements or qualifications of a BRP
A BRP has very specific requirements that he or she needs to comply with when they wish to be appointed as a BRP to a company in financial distress.
The Companies Act of 2008 states in Section 138 that a BRP must comply with the relevant subsections to be considered for the certification as a BRP:
A person may be appointed as the business rescue practitioner of a company only if the person(s):
a) is a member in good standing of a legal, accounting or business management profession accredited by the Commission;
b) has been licensed as such by the Commission in terms of subsection (2);
c) is not subject to an order of probation in terms of section 162(7);
d) would not be disqualified from acting as a director of the company in terms of section 69(8);
e) does not have any other relationship with the company such as would lead a reasonable and informed third party to conclude that the integrity, impartiality or objectivity of that person is compromised by that relationship; and
f) is not related to a person who has a relationship contemplated in paragraph (d).
For the purposes of subsection 1(a)(ii), the Commission may license any qualified person to practice in terms of this Chapter and may suspend or withdraw any such licence in the prescribed manner.
The Minister may make regulations prescribing:
a) standards and procedures to be followed by the Commission in carrying out its licencing functions and powers in terms of this section; and
b) minimum qualifications for a person to practice as a business rescue practitioner, including different minimum qualifications for different categories of companies.
Removal and replacement of practitioner
A BRP can be removed from his position in certain circumstances. This is made possible in Section 139 because it may happen that the BRP is not performing his functions properly or worst case scenario he, unfortunately, passes away.
Both these scenarios will require the company to replace the BRP. So if the BRP is not performing their job properly, have them removed so that you can give your company the best chance of survival!
A practitioner may be removed only
a) by court order in terms of section 130; or
b) as provided for in this section.
Upon request of an affected person, or on its own motion, the court may remove a practitioner from office on any of the following grounds:
a) Incompetence or failure to perform the duties of a business rescue practitioner of the particular company;
b) failure to exercise the proper degree of care in the performance of the practitioner’s functions;
c) engaging in illegal acts or conduct;
d) if the practitioner no longer satisfies the requirements set out in section 138(1);
e) conflict of interest or lack of independence; or
f) the practitioner is incapacitated and unable to perform the functions of that office, and is unlikely to regain that capacity within a reasonable time.
The company, or the creditor who nominated the practitioner, as the case may be, must appoint a new practitioner if a practitioner dies, resigns or is removed from office, subject to the right of an affected person to bring a fresh application in terms of section 130(1)(b) to set aside that new appointment.
General powers and duties of practitioners
The Companies Act gives the BRP certain duties to perform but also gives them some powers to ensure that they can give effect to their duties. This is all contained in Section 140.
During a company’s business rescue proceedings, the practitioner, in addition to any other powers and duties set out in this Chapter:
a) has full management control of the company in substitution for its board and pre-existing management;
b) may delegate any power or function of the practitioner to a person who was part of the board or pre-existing management of the company;
i) remove from office any person who forms part of the pre-existing management of the company; or
ii) appoint a person as part of the management of a company, whether to fill a vacancy or not, subject to subsection (2); and
d) is responsible to:
i) develop a business rescue plan to be considered by affected persons, in accordance with Part D of this Chapter; and
ii) implement any business rescue plan that has been adopted in accordance with Part D of this Chapter.
The practitioner must, as soon as practicable after appointment, inform all relevant regulatory authorities having authority in respect of the activities of the company, of the fact that the company has been placed under business rescue proceedings and of his or her appointment.
Except with the approval of the court on application by the practitioner, a practitioner may not appoint a person as part of the management of the company, or an advisor to the company or to the practitioner, if that person(s):
a) has any other relationship with the company such as would lead a reasonable and informed third party to conclude that the integrity, impartiality or objectivity of that person is compromised by that relationship; or
b) is related to a person who has a relationship contemplated in paragraph (a).
During a company’s business rescue proceedings, the practitioner
a) is an officer of the court, and must report to the court in accordance with any applicable rules of, or orders made by, the court;
b) has the responsibilities, duties and liabilities of a director of the company, as set out in sections 75 to 77; and
c) other than as contemplated in paragraph (b):
i) is not liable for any act or omission in good faith in the course of the exercise of the powers and performance of the functions of practitioner;
ii) may be held liable in accordance with any relevant law for the consequences of any act or omission amounting to gross negligence in the exercise of the powers and performance of the functions of practitioner.
If the business rescue process concludes with an order placing the company in liquidation, any person who has acted as practitioner during the business rescue process may not be appointed as liquidator of the company.
Investigation of affairs of the company
A BRP must investigate the affairs of the company and report on them to the affected persons. This is done as it is his/her duty to see whether the business can be saved and to ensure that the affected persons know exactly what is happening in the company. Section 141 regulates this investigation:
As soon as practicable after being appointed, a practitioner must investigate the company(s) affairs, business, property, and financial situation, and after having done so, consider whether there is any reasonable prospect of the company being rescued.
If, at any time during business rescue proceedings, the practitioner concludes that:
a) there is no reasonable prospect for the company to be rescued, the practitioner must
i) so inform the court, the company, and all affected persons in the prescribed manner; and
ii) apply to the court for an order discontinuing the business rescue proceedings and placing the company into liquidation;
b) there no longer are reasonable grounds to believe that the company is financially distressed, the practitioner must so inform the court, the company, and all affected persons in the prescribed manner, and
i) if the business rescue process was confirmed by a court order in terms of section 130, or initiated by an application to the court in terms of section 131, apply to a court for an order terminating the business rescue proceedings; or
ii) otherwise, file a notice of termination of the business rescue proceedings;
c) there is evidence, in the dealings of the company before the business rescue proceedings began, of
i) voidable transactions, or the failure by the company or any director to perform any material obligation relating to the company, the practitioner must take any necessary steps to rectify the matter and may direct the management to take appropriate steps;
ii) reckless trading, fraud or other contravention of any law relating to the company, the practitioner mustï
aa) forward the evidence to the appropriate authority for further investigation and possible prosecution; and
bb) direct the management to take any necessary steps to rectify the matter, including recovering any misappropriated assets of the company.
3) A court to which an application has been made in terms of subsection (2)(a)(ii) may make the order applied for, or any other order that the court considers appropriate in the circumstances.
Directors of the company must co-operate with and assist the BRP
Section 142 obliges the directors of a company to assist the BRP and to ensure that they can execute their duties without being handicapped.
As soon as practicable after business rescue proceedings begin, each director of a company must deliver to the practitioner all books and records that relate to the affairs of the company and are in the director(s) possession.
Any director of a company who knows where other books and records relating to the company are being kept, must inform the practitioner as to the whereabouts of those books and records.
Within five business days after business rescue proceedings begin, or such longer period as the practitioner allows, the directors of a company must provide the practitioner with a statement of affairs containing, at a minimum, particulars of the following:
a) Any material transactions involving the company or the assets of the company, and occurring within 12 months immediately before the business rescue proceedings began;
b) any court, arbitration or administrative proceedings, including pending enforcement proceedings, involving the company;
c) the assets and liabilities of the company, and its income and disbursements within the immediately preceding 12 months;
d) the number of employees, and any collective agreements or other agreements relating to the rights of employees;
e) any debtors and their obligations to the company; and
f) any creditors and their rights or claims against the company.
No person is entitled, as against the practitioner of a company, to retain possession of any books or records of the company, or to claim or enforce a lien over any such books or records, unless such books or records are in the lawful possession of such person and he or she has made copies available to the practitioner or has afforded the practitioner a reasonable opportunity to inspect the books or records concerned.
Remuneration of practitioner
In the news, you have most probably read a lot about the remuneration that a BRP can charge the company which he or she must help. Unfortunately, there are too many bad stories about BRP’s charging exorbitant fees, but Section 143 makes the remuneration of a BRP pretty clear cut and easy to understand.
The practitioner is entitled to charge an amount to the company for the remuneration and expenses of the practitioner in accordance with the tariff prescribed in terms of subsection (6).
The practitioner may propose an agreement with the company providing for further remuneration, additional to that contemplated in subsection (1), to be calculated on the basis of a contingency related to
a) the adoption of a business rescue plan at all, or within a particular time, or the inclusion of any particular matter within such a plan; or
b) the attainment of any particular result or combination of results relating to the business rescue proceedings.
Subject to subsection (4), an agreement contemplated in subsection (2) is final and binding on the company if it is approved by
a) the holders of a majority of the creditors voting interests, as determined in accordance with section 145(4) to (6), present and voting at a meeting called for the purpose of considering the proposed agreement; and
b) the holders of a majority of the voting rights attached to any shares of the company that entitle the shareholder to a portion of the residual value of the company on winding-up, present and voting at a meeting called for the purpose of considering the proposed agreement.
A creditor or shareholder who voted against a proposal contemplated in this section may apply to a court within 10 business days after the date of voting on that proposal, for an order setting aside the agreement on the grounds that
a) the agreement is not just and equitable; or
b) the remuneration provided for in the agreement is unreasonable having regard to the financial circumstances of the company.
To the extent that the practitioner(s) remuneration and expenses are not fully paid, the practitioner(s) claim for those amounts will rank in priority before the claims of all other secured and unsecured creditors.
The Minister may make regulations prescribing a tariff of fees and expenses for the purpose of subsection (1).