Business Rescue Practitioners: Roles and Requirements
Business rescue is the process whereby a company in financial distress is restructured under the supervision of an appointed business rescue practitioner to bring it back to a state of solvency and thus the ability to legally trade. According to the new Companies Act of 2008 and its amendments, such practitioners must meet specific requirements.
A closer look at the requirements, appointment processes, tasks, and goals of business rescue practitioners serves to clarify the roles of such practitioners in helping to turn failing companies around.
What is Achieved with Business Rescue?
The proceedings aim to rehabilitate a financially distressed company under the temporary supervision of one of the qualified business practitioners that manage the affairs, operations, and assets of the company.
The aim is thus to return the company to a state in which it is reasonably able to trade and provide for a better return for the creditors and other affected parties than would be the case with the liquidation of the entity.
The rights of the creditors in terms of claims against the distressed company are temporary stayed. A plan is set in motion to restructure the entity, its operations, assets, and debts to help turn it around within a set time frame.
It goes without saying that the practitioners have extremely responsible positions and must, therefore, be experienced and qualified to take charge of a distressed company in order to save it to the benefit of the affected parties.
How Many People Can Be Appointed as Practitioners?
Such practitioners are the persons appointed to oversee the management and business rescue process of the distressed company. The act also defines a person as a legal entity. As such, a company of accountants or a legal firm can thus be appointed as business practitioners. The act allows for the appointment of one or more persons jointly as practitioners to oversee the business rescue of a distressed company.
Understand Affected Persons or Parties
Affected parties or persons are the stakeholders, creditors, shareholders, employees, or their representatives, such as registered trade unions who are affected by the solvency and thus financial success of the company.
Understand When a Company Qualifies
Appointed practitioners must assess whether the company is truly financially distressed and thus unable to pay debts when due, is likely to be unable to pay debts due within the next six months, or is likely to become insolvent in the next six months from the date of assessment.
Practitioners also assess whether the financially distressed company is likely to become solvent as the result of the restructuring of its affairs, debts, operations, and assets and be able to trade again with a better return for the creditors.
Role of The Business Rescue Practitioners
The practitioners must, as soon as possible from the date of appointment, determine the likelihood that the distressed company can be rescued. This is done after they have investigated the company’s assets, financial state, and affairs.
Reporting During the Proceedings
The practitioners must, after appointment and during the rescue process, report to the affected parties and relevant authorities if they find:
- The business is not likely to return to a state of solvency, despite rescue efforts.
- The business is not financially distressed.
- Evidence of fraud by the company or one of its directors.
- Evidence of voidable transactions.
- Evidence of failure by one or more directors to meet their material obligations to the company.
- Evidence of reckless trading by the company or one of its directors.
- Evidence of the misappropriation of company funds.
The practitioners must forward evidence to the relevant authorities regarding reckless trading, fraud, or the contravention of laws directly related to the company. This is to ensure that the necessary prosecution of parties involved can be done where needed. The management or parties that have not met their material obligations to the company must be directed to take steps in rectifying the situation. Where funds have been misappropriated, steps must be made for the recovery of the funds.
Powers of Business Rescue Practitioners
The act provides the practitioners with certain rights during the rescue process. These rights and powers include:
- Full control over the distressed company.
- Right to delegate certain functions to one or more directors of the board or someone that has been part of the pre-existing management function of the said company.
- Right to remove a person that has been part of the pre-existing management team from their role.
- Right to appoint a person who has no other relationship with the distressed company.
In some instances, the court must provide approval for appointments to office and the removal of persons holding office in the company.
Appointment of Business Rescue Practitioners
The board can, within five days of the company’s adoption and filing of the business rescue resolution with the CIPC, appoint one or joint business rescue practitioners. An affected party can apply to court to have a practitioner appointed. The court may appoint an interim practitioner. Note that certain requirements apply in terms of the act, which are best discussed with our attorneys.
Business practitioners must meet specific requirements before they can be appointed. For one, to qualify, a person must be a member of a business management, accounting, or legal profession and must be in good standing in the profession. The person must not be under probation and must not be disqualified to act as a company director. In addition, the person must not have a conflict of interests with the distressed company. As such, the relationship with the company must not be of such a nature that impartiality can be affected.
Public Interest Score
The act stipulates how the public interest score is calculated to determine in which category a company falls regarding business rescue. Companies are categorised according to the public interest score as small, medium, or large companies.
Business rescue practitioners are also categorised according to their qualifications and experience as junior, experienced, or senior. To be appointed for business rescue of a large company (score of more than 500), the practitioner must meet the requirements to be classified as senior. An experienced practitioner can be appointed for a medium or small company.
It is best to discuss the requirements for the appointment of business rescue practitioners with our attorneys. A company with a public interest score of between 100 and 500 is classified as medium.
Business rescue practitioners are entitled to receive remuneration for the time, expertise, and expenses associated with their roles. The amounts payable are determined by the court, creditors, and stakeholders, but maximum amounts are set.
Removal of a Practitioner from Office
An affected person can apply to court to have a practitioner removed from office based on the fact that the person is not impartial, does not meet the requirements as set out by the act, does not have the necessary skills, no longer satisfies the requirements, fails to perform, or is engaged in irregularities in terms of the company.
Business rescue practitioners have important roles to help distressed firms to regain solvency. With such responsible roles, it is essential to appoint qualified and experienced persons to the positions.
Get in touch for legal help regarding business rescues in South Africa.
Disclaimer: This article is for information purposes only and does not constitute legal advice. Call on our attorneys rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing.