What is Business Rescue?

Written by Tiaan Geel
Vitalis Consulting: Rescue division


Business Rescue is a relatively new term in the South African legal landscape having only been effectively adopted in April 2011. Although the process is still in its infant years in terms of our judicial system, it has been the cause of tremendous joy as well as probably ten times the amount of anger, fear and utter frustration.

The reasons for this anger, fear and frustration stem from the fact that everyone in South Africa is still not an expert on Chapter 6 nor its true potential. It is pretty much a trial and error approach by each BRP during the execution of the Business Rescue Process, determining what the business in distress needs, what is allowed in terms of the Act and what the stakeholders would accept as a proper approach and process.

It is for this reason that the question is asked, is Business Rescue a “Necessary Evil” of our legal landscape or is it a “Brilliant Business” tool?

2. WHAT IS BUSINESS RESCUE? [s128(1)(b)]

The term ‘‘Business Rescue’’ means proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for:

  1. the temporary supervision of the company, and of the management of its affairs, business and property;
  2. a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and
  3. the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.

Thus, in short, the term refers to the process in terms of the Companies Act whereby a company is assisted to return to profitability, i.e. it is turned around, or a turnaround process is implemented. In some cases, the company can simply not be returned to profitability and the best option would be to perform a type of “structured liquidation”.

The intention of this term is to show that the assets of the company can be sold off at market related rates, instead of liquidation values, where after the creditors and shareholders could perhaps receive a higher dividend for their debts owing than in the case of an immediate liquidation.

Many experts in the industry do not believe this to be a purpose of Business Rescue, however, according to paragraph iii above, it is one of the objectives of the Business Rescue process.

One of the major issues with the Business Rescue process and Business Rescue Practitioners is that it is sometimes used as a delay tactic by the company and the BRP. There are some companies that enter into Business Rescue to buy themselves time and set themselves up for a future liquidation.

This is done so that assets can be moved from the company while the creditors’ debts remain in the company and they have no immediate recourse against the company for its outstanding debts. This is of course not the intended purpose of Business Rescue as the purpose is to really assist businesses in distress.


In the “old” Companies Act of 1973 we had a process called judicial management. This system unfortunately did not work that well as all the decisions made by the judicial manager had to be signed off by the court and the legislation was poorly written. This system was a complete failure.

When the legislature decided to rewrite the legislation that governs the companies is South Africa, the need for a proper system of assistance was recognised and was thus incorporated into the Act.

The new system of Business Rescue contained in Chapter 6 of the Companies Act of 2008 is comparable to Chapter 11 in the USA and the Administration regime in the UK. Both of these systems are used quite extensively and are extremely successful in assisting companies to perform a turnaround of their operations and getting these companies back to profitability.


The key stakeholders in a business rescue are defined as:

  • The shareholders,
  • The creditors (including director’s/shareholders loans),
  • All employees or their representatives.

The reason for making these persons a part of the business rescue process is to ensure that their interests are taken into account during the process and to ensure a maximum possible return can be given to these stakeholders. They are thus kept up to date with all of the developments during the Business Rescue Process

A valid point can be raised for the inclusion of the customers of a company. They are in many instances where the customers are probably the biggest stakeholders. This is especially true in situations where the company in business rescue is liable for future warranties on a product or service, has the duty to perform in terms of a contract or receives money in trust on behalf of another party.

The Companies Act and its regulations however only require that the fact of business rescue being in place be only mentioned on all of the official documentation, i.e. quotes, invoices and statements. The customers are not explicitly notified of the process and included in all of the meetings to be held.


This is a contentious issue that most business rescue practitioners and business owners will argue on for days. However, the Companies Act makes it clear that a company should file as soon as it is financially distressed. The definition of financially distressed is given in s128(1)(f):

  1. it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months; or
  2. it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months;

The biggest issue being experienced by Business Rescue Practitioners is that the directors wait too long to file for Business Rescue. The results of this are that in many cases the company waited too long, and the banks have cancelled credit facilities, staff have left due to non-payment and suppliers have closed the credit accounts and are willing to only supply goods and services on COD accounts.


Business Rescue Proceedings can commence in one of two ways. It can be started either as a:

  1. Board of Directors resolution in terms of section 129. This entails a voluntary application by the company and its directors and is thus an internal decision, or
  2. A court order in terms of section 131. This entails that any affected person, a creditor, shareholder or an employee representative can approach the court to commence with the process and enter the business in question under the supervision of a business rescue practitioner.

The majority of Business Rescue matters have been voluntary applications where the Board of Directors have appreciated the situation they find themselves in and opted to file for Business Rescue. As at the date of this documents, there has been only 1 matter where a trade union, representing the interests of the employees, have successfully applied to enter a company into Business Rescue.


The BRP takes over complete management control from the existing directorship and management of the company in terms of section 140(1)(a). It is this cleat that the Business Rescue Practitioner or BRP plays the pivotal role in the entire Business Rescue Process. The BRP is the person who is responsible for the daily operations of the company as well as the entire negotiation process with all of the stakeholders in the company.

Section 138 governs the qualifications that business rescue practitioners should have to be considered qualified to handle the intricacies of a Business Rescue process. Section 138(1)(e) stipulates that the BRP should not have a 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.

The Company and Intellectual Property Commission of South Africa (CIPC), the current custodians of Business Rescue Proceedings, in general do not wish for the Business Rescue Practitioner to have contact with a company, wishing to enter into Business Rescue, for a period exceeding 10 days.

There are however no time limits stipulated in the Act for the Business Rescue Practitioner to familiarise themselves with the company and its operations. This policy is implemented to ensure that the BRP has not also been assisting the company outside of Business Rescue, unable to improve its operations, and then wished to use the Business Rescue process for the wrong reasons.

It is important to note the wording of section 138(1)(a). It implies that the CIPC is to license certain organisations or institutions with the ability to certify certain individuals, specifically their members, with a BRP license. The CIPC implemented this section only towards the end of 2017 and other institution or organisation can now issue Business Rescue Practitioner licences.


Sections 75 to 77, as read with section 22 of the Act, imposes certain duties and responsibilities onto directors and penalises and holds them personally liable for any loss incurred through knowingly carrying on the business of the company recklessly or with the intent to defraud creditors and other stakeholders. Section 214 creates criminal liability for those directors trading a company in a manner which is calculated to defraud a creditor.

In terms of section 140(3)(b), the Business Rescue Practitioners have these same responsibilities and duties imposed on them including all of the liabilities. The Business Rescue Practitioner is further an officer of court in terms of section 140(3)(a) and must report to the court in accordance with any applicable rules of, or orders made by, the court.


Many Business Rescue Practitioners feel that the timelines stipulated in the Act are extremely short and do not allow for the sufficient rescue and turnaround of a company. The timelines for the process and all of the important milestones are given below.

Once a company has resolved (a resolution has been adopted) to file for Business Rescue, there is no specific timeline to submit the application documentation to the CIPC, but it is suggested that this be done with immediate effect and that this is not delayed.

Once a company has submitted the required documentation to the CIPC to enter the business into Business Rescue, it has:

  1. 5 business days to notify all of its known creditors of the commencement of the process and providing them with all of the documents used to enter Business Rescue.
  2. Within these same 5 business days as per Nr 1, the company must find and appoint its BRP. Essentially within 5 days, it must find, trust and give over the entire control of the company to this person which is not allowed, in terms of the CIPC policy, to have more than 10 days’ contact.
  3. Within 10 business days of the BRP’s appointment, the BRP must hold the 1st meetings of creditors and staff representatives.
  4. Within 25 business days of the BRP’s appointment, a Business Rescue Plan must be published on which the creditors will vote to determine the future of the company.
  5. Within 10 business days after the publication of the Business Rescue Plan, but not shorter than 5 business days, the BRP must hold a meeting of creditors to vote on the plan.

Thus, in terms of the timelines in the Act, within a maximum period of 40 business days, the BRP needed to get all of the information possibly available on the business, determine what went wrong with its current operations, negotiated with all of the stakeholders and determined how the company is going to be helped to continue the operations of the business.

It is rather obvious that this is an extremely short time period and it is rather difficult to publish a plan that will be acceptable in this time. It is for this reason that most BRP’s request an extension on the publication date of the Business Rescue Plan. It is advisable to request such an extension on the publication of the plan at the 1st meeting of creditors to ensure a sufficient time line to publish a proper plan and to ensure the buy-in of the stakeholders.


Section 133 of the Act provides for a moratorium on all legal proceedings against the business. This was placed into the Act to ensure that the business can improve its operations and financial situation without the added burden of legal proceedings and the related costs thereof.

Since the commencement of Business Rescue in South Africa, there have been numerous cases on the process of Business Rescue and exactly what is meant by the words of the legislation. Since Business Rescue has only been a part of our business landscape since April 2011, it is a relatively new piece of legislation and a lot more time needs to pass for us to have sufficient precedents in the form of case law to state the exact position of some sections in the Act.


The Act provides that the BRP must prepare, publish and implement a Business Rescue Plan. This plan contains the proposals of how the BRP believes the business can be rescued and must provide for and contain at least the following sections on the business:

The BRP needs to provide a history of the Company, what it is they do and focus on and probably more important, how it got to be in the current financially distressed situation. It is important to identify this action as this helps the business to identify what it is they should not do.

The BRP needs to detail his/her proposals that are needed to rescue the Company by restructuring its debts, redefining its asset utilisation as well as the steps to be implemented to make the business more profitable. In this section the BRP also needs to detail how and when the creditors will be repaid for their debts owing.

The BRP needs to rely on certain assumptions when drafting the business rescue plan. The business rescue plan is based upon certain inputs and events happening to achieve specific outcomes, and because none of us can see into the future, these assumptions give the creditors an idea of what processes they are either adopting or rejecting and voting on.

12. THE VOTING MEETING [s151 & s152]

The voting meeting by creditors is conducted in terms of s151 and s152 to ensure that the creditors present at the meeting get a chance to vote on the proposed business rescue plan. This ensures that their interests are taken into account and are a part of the process.

It is thus extremely important to note that the creditors have the final say on the business rescue plan, if the shareholders’ rights are not affected. In the event that the shareholders’ rights are affected, for example, their shareholding is diluted by the introduction of a new shareholder, then they get to vote on the proposed business rescue plan right after the creditors have cast their votes and voted in favour of the proposed plan.

The actual process that the voting must follow is depicted in section 152. Some of the most important aspects to the voting meeting and procedure are as follows:

  • Only creditors present at the voting meeting are allowed to vote.
  • If a creditor is not present at this meeting, is against the adoption of the business rescue plan, but the business rescue plan is voted in, it is still applicable and enforceable on them.
  • The BRP needs a vote in favour of the adoption of the business rescue plan equal to 75% of the creditors in value, present at the meeting and voting for the adoptions of the business rescue plan.


In the event that the business rescue plan is not accepted by the creditors, the BRP MUST take action in terms of section 153. The BRP has one of two choices in such an instance. The BRP can:

  1. Ask the creditors’ permission to publish a revised plan and then vote on that revised plan. Should the creditors agree to the publication of a revised business rescue plan, then the BRP has 10 days to resubmit a business rescue plan.
  2. Approach the court and state that the voting decision by the creditors is inappropriate and request the court to change their vote to an adoption of the business rescue plan instead of a rejection thereof.

It is of course very risky for the BRP to approach the court and request that the vote be set aside should it happen that the creditors are not put into a better situation with the business rescue process instead of liquidation.


There are many steps to be included in a properly constructed business rescue plan and the list is non-exhaustive, but there are certain clauses that can be included to make a great improvement in the profitability and sustainability of the business. There are many such proposals that are made in Business Rescue Plans. The most used ones are as follows:

The first proposal that the BRP can build in, is to reduce the historic debts that are to be repaid to a specific dividend of cents in the rand. This means that the BRP proposes in the Business Rescue Plan that the creditors will not receive their full debt owing, but might only receive a portion of it, for example the creditors will receive 40c to the rand.

The second proposal is to propose that the repayments will be paid over a time period. Thus, the repayments will not be made immediately, but will be extended for a period of up to a few years. This eases the already tight cash flow of the business.

The BRP can propose that the business must search for and get an investor into the business. This investor must then inject money into the business, but more importantly should have expertise to improve the operations of the business, thus making it more profitable.

The BRP is also able to request extensions on certain agreements for instance Hire Purchase agreements and Lease agreements. The BRP is in a position to reduce the cash burden on the business for the time being while the business is under Business Rescue and thus improving the immediate cash flow of the business.


This document is by no means a full explanation of the inner workings of the Act or the process of Business Rescue and should not be used as legal advice. It is the opinion of Tiaan Geel, the Managing Director of Vitalis Consulting, and contains some of his experiences on the process of running Business Rescue matters. At the time of the publication hereof, he has taken 35 appointments as a Business Rescue Practitioner and has assisted the appointed Business Rescue Practitioner on 5 more Business Rescue matters.

He is actively involved in the Business Rescue industry and educated the public, business owners, creditors and any other stakeholders on the correct processes and procedures to be followed. Tiaan is of the opinion that Business Rescue is one of the most powerful tools ever given to the South African business landscape and needs to be used correctly by its custodians.

Is it a necessary Evil or is it Brilliant Business?

You decide…

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