What do you do if your company is in “financial distress”? Help is at hand – the new business rescue procedure is aimed at helping such companies to return to commercial viability, or – where full or partial rescue is impossible – to at least secure a better return for creditors and other stakeholders than would result from a liquidation. For this purpose the company is given temporary protection from creditors whilst a business rescue practitioner takes over control from the directors and – where feasible – formulates a business rescue plan.
Directors – your risk!
Bearing in mind that directors who continue to trade when failure looms risk both criminal prosecution and personal liability for company debts, they should take immediate advice on the best course of action in each case.
Decisions, decisions: and, just how sick is your company?
Normally the decision will boil down to applying for either liquidation or for business rescue protection. A recent run of High Court decisions gives some guidance on which option to choose: –
- Business rescue is always preferred to liquidation;
- Nevertheless the court has a discretion not to grant a business rescue application, and is only likely to grant it if given sufficient “concrete” (i.e. not vague or speculative) information addressing the cause of the business failure, and offering a rescue plan with a “reasonable prospect” of success. It all boils down to how sick the company really is – as a recent judgment put it: “……business rescue proceedings are not for the terminally ill close corporations. Nor are they for the chronically ill. They are for ailing corporations, which, given time, will be rescued and become solvent”;
- When a company cannot be rescued, the enquiry switches to whether a better result for stakeholders (creditors, employees, directors and shareholders) is likely to be achieved by a liquidator or by a business rescue practitioner. Every case will be different, and will be decided on its own facts – factors such as prices likely to be realised for assets, the legal effects of liquidation, the powers of liquidators to investigate and impeach transactions etc will come into play.
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