Following the announcement made by the World Health Organization declaring COVID-19 a pandemic on 11 March 2020, President Cyril Ramaphosa announced a 21 day national lockdown spanning from midnight 26 March 2020 until 16 April 2020 (“the lockdown”). The lockdown requires all South Africans to minimize contact with one another and to remain at home. However, the categories of persons who form part of the essential services (as defined in the regulations of the Disaster Management Act, 2002 (the “Regulations”)) are: emergency personnel, security services, those involved in the production, distribution and supply of food and basic goods, essential banking services, the maintenance of power, water and telecommunications services, laboratory services and the provision of medical and hygiene products.
The government has formulated a debt relief fund in conjunction with private business, which includes the R 1 Billion Rand donations made by the Rupert and Oppenheimer families to assist local businesses experiencing financial distress as a result of the restrictions implemented during the lockdown. This will only benefit companies with a turn over of less than R 50 000. 000 (Fifty Million Rand) and nobody is entirely sure as to when and how this aid by the Government will be paid. That being said, many of those businesses who form part of the non-essential sector will be heavily impacted financially due to COVID-19 and the stringent measures that have been put in place as per the Regulations to prevent the spread of the virus.
In light of the above, business rescue may be a positive solution to aid businesses suffering financially and to create a moratorium for the repayment of debt as a result of the lockdown. Business rescue is regulated in South Africa by Chapter 6 of the New Companies Act. The main purpose of business rescue is to facilitate the rehabilitation of a company that is in financial distress, and provides these companies with an alternative to liquidation.
A business rescue practitioner will be appointed / or nominated by the interested party to offer his / her expertise to reform and reorganize the company with the end goal of restoring the business to a stable and profitable state of operation. The said practitioner is a person appointed temporarily, or 2 (two) or more persons jointly appointed temporarily to oversee the running of a company during business rescue proceedings.
Business rescue does offer numerous benefits for financially distressed businesses. For example, it may provide a better return for creditors; it preserves employee and company assets and is undoubtedly preferable to liquidation. Business rescue further provides a life-line to companies undergoing financial distress, where creditors are barred from proceeding with any legal action pending the outcome of the business rescue proceedings. When it comes to the restructuring of an entity, business rescue ensures a regulated environment in which such restructuring can occur with the ultimate aim of achieving solvency for the distressed company.
Therefore, should a business find itself in financial distress due to COVID-19, business rescue may be a potential solution in stabilizing and restoring the entity with the aid of an appointed and qualified business rescue practitioner.
Article by Dylan Kader (Candidate Attorney)
