The spread of the Covid – 19 pandemic has led to many governments and lawmakers around the globe taking drastic measures in not only seeking to curb the spread of the pandemic, but at the same time maintaining a healthy outlook on the economy by maintaining businesses afloat in these unprecedented times. In South Africa, contributions have flooded in from wealthy families and many banks have been encouraged to assist companies in distress. 

However, even in the absence of large contingency funds in our national treasury Chapter 6 of the Companies Act 71 of 2008 (also known as the business rescue Chapter) provides for the implementation of a mechanism which will enable financially distressed businesses to restructure their affairs under the supervision of a business rescue practitioner.

Sometimes trying to trade out of insolvent circumstances is an impossible task when a company is already not in a position to pay its debts when they become due and payable. Even though the Companies and Intellectual Property Commission issued a Practice Note that will enable companies to do so in these times, the continued trade of a company under insolvent circumstances may cause greater damage to the balance sheet of a company if it is not guided by a turnaround plan and more importantly without the implementation of certain key benefits of business rescue proceedings.

There are several special benefits that Chapter 6 provides for a company in rescue as a mechanism to financially rehabilitate itself or produce a better return for creditors than the immediate liquidation thereof:

• there is a general moratorium, or suspension, of legal proceedings against the company during business rescue. This means that employees, shareholders or creditors cannot enforce their claims or disputes against the company except if the court grants leave or the appointed business rescue practitioner (the “Practitioner”) grants such consent in writing to a claimant. This means that property interests are protected as the rights of creditors in respect of property in possession of the company are suspended;

• the Practitioner can suspend specific onerous contracts of the company and may even apply to court for their cancellation on just and reasonable grounds;

• employees are classified as preferred unsecured creditors, which means that any remuneration that becomes due and payable to them during business rescue proceedings will take preference over all other secured and unsecured claims against the company;

the second leg on which business rescue is built on is that is achieving a result for creditors which is more favourable than the immediate liquidation of the company. In order to achieve this, the company continues its operations during business rescue; Under section 129 of the Companies Act, the board may resolve that the company voluntarily begins business rescue proceedings and agrees to place the company under supervision, if they have reasonable grounds to believe that –

 a. the company is financially distressed; and

 b. there appears to be a reasonable prospect of rescuing the company.

Directors must be aware that the company under their control does not operate in isolation to the greater economy and every due care and diligence is required to ensure that businesses remain afloat during these challenging times. The continued trade of companies is key to the maintenance of a healthy economy, but this can only be achieved under the right supervision and a suited turnaround plan.