A critical analysis of the institution of business rescue proceedings during liquidation proceedings.
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Date
2022
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Abstract
South Africa is currently undergoing harsh economic times, and as such, many
companies are feeling the brunt of the situation. As a result, these companies begin to
trade at a loss and are left without any other option but to liquidate their affairs in order
to pay off creditors. However, with the development brought by the Companies Act 71
of 2008 (“the Act”), business rescue was introduced. Business rescue is an alternative
to liquidation and it allows the company to undergo rehabilitation and continue trading
if certain requirements are met.
Chapter 6 of the Act aims to assist businesses in providing some sort of relief in the
form of business rescue to provide them with the breathing space that they require to
try and become a viable business again.
Just like any new formulated concept, it is susceptible to abuse. Many companies that
are already under liquidation are suspending their liquidation in favour of business
rescue, despite, in some instances, the liquidation order having already been granted
against the company.
The Covid-19 pandemic has made the question of whether a business can suspend
liquidation proceedings in favour of business rescue more prevalent as the pandemic
has caused a detrimental financial impact on a number of businesses. Now more than
ever businesses find themselves struggling to keep afloat, and as a result many of them
have to consider the avenues of liquidation or business rescue.
This dissertation aims to look at both liquidation and business rescue proceedings and
decipher whether the courts were correct in their decision regarding when business
rescue proceedings can be instituted during liquidation proceedings.
The importance of taking into account the above is due to the fact that many companies
in present day are experiencing financial difficulties, and liquidation or business rescue
proceedings are the options that they are left with. However, one has to carefully
consider both options, taking into account the company’s financial circumstances. This
is of importance, as one needs to establish if there is a reasonable prospect of rescuing
the company or not. If there were, then business rescue would indeed be the route to be
taken, but if not, then liquidation proceedings would be. However, many companies
that have no prospect of being rescued, and that have already opted for liquidation may want to institute business rescue proceedings to delay the inevitable and frustrate
creditors, thus leading to the abuse of the newly formulated concept, which has to be
curbed.
Description
Masters Degree. University of KwaZulu-Natal, Durban.