The only thing a business owner or management team fears more than business rescue is liquidation. This inherent fear of temporarily relinquishing control and seeking help often results in last-minute, crisis-driven decisions.
It is common for businesses to enter rescue proceedings as a last resort to avoid liquidation rather than proactively undertaking a formal restructuring program when there is still time to turn the company around in a controlled and strategic manner.
A common perception is that business rescue often fails. However, the outcome is closely linked to the timing of the decision—when did the company enter the formal restructuring process?
Was it in accordance with the Companies Act?
- When it appeared reasonably unlikely that the company would be able to pay all its debts as they became due within the next six months; or
- When it appeared reasonably likely that the company would become insolvent within the next six months?
Or was it only when the business owner consulted their lawyer or accountant, saying, “I have received a letter of demand,” or “Salaries and wages are due tomorrow, and I can’t pay—what must I do?”
Understanding Business Rescue
Business rescue, as defined by the Companies Act of 2008, aims to facilitate the rehabilitation of financially distressed companies. It involves three key elements:
- Temporary Supervision and Management
A business rescue practitioner (BRP) assumes full management control of the company and is accountable to creditors. The board’s authority is temporarily suspended during this process. - Moratorium on Claims
A temporary moratorium (or “stay”) is placed on creditors’ rights to claim against the company or its property. - Business Rescue Plan
The BRP develops and implements a restructuring plan to improve the company’s financial viability by reorganizing its business, assets, debt, and liabilities.
The Fear of Losing Control
Many business owners fear losing control during the business rescue process. They worry about reduced autonomy, loss of decision-making power, and the possibility of liquidation. However, understanding the process and partnering with the right professionals can help alleviate these concerns.
When to Consider Business Rescue
- Struggling vs. Chronically Ill Companies
- Business rescue is best suited for companies that are “ailing” rather than “chronically ill.” A struggling company can use business rescue to restructure and continue operating.
- Liquidation, on the other hand, is often the only option for companies with severe, long-standing financial issues that cannot be resolved through restructuring.
- Timing Matters
- Business rescue should not be left too late. If a company is already insolvent, it may be difficult to secure post-commencement financing (PCF) or successfully restructure.
- Delaying the decision can lead to liquidation, exposing directors to potential liability for reckless trading and endangering employees’ livelihoods.
- Preserving Jobs and the Tax Base
- Business rescue aims to save jobs and maintain viable businesses. A successfully rescued company contributes to tax revenue, supports local industries, and sustains employment.
- Government, unions, and financial institutions should actively support business rescue efforts, recognizing their positive impact on the economy.
Conclusion
Business rescue is a valuable tool when implemented at the right time. Owners should consider it as a proactive strategy rather than a last-minute hopeful solution. Acting early can help save businesses, protect jobs, and contribute to a stronger economy. The key is finding the right balance between maintaining control and ensuring long-term survival.
About the Author
Warren Castle is the Operations Director at Engaged Business Turnaround (Pty) Ltd. He holds a B.Com and an MBA, along with a Certified Rescue Analyst qualification from the University of Pretoria. Warren and the Engaged team have worked on numerous business rescues and informal turnaround projects, focusing not only on financial restructuring but also on operational turnaround and support.