{"id":5310,"date":"2023-10-11T12:19:16","date_gmt":"2023-10-11T10:19:16","guid":{"rendered":"https:\/\/kmnholdings.co.za\/consulting\/?page_id=5310"},"modified":"2023-10-18T11:08:49","modified_gmt":"2023-10-18T09:08:49","slug":"choose-a-business-rescue-practitioner-who-has-run-a-business","status":"publish","type":"page","link":"https:\/\/kmnholdings.co.za\/consulting\/choose-a-business-rescue-practitioner-who-has-run-a-business\/","title":{"rendered":"Choose A Business Rescue Practitioner Who Has Run A Business"},"content":{"rendered":"\t\t
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By Dr Kaizer M. Nyatsumba (MBA, PhD), Business Rescue Practitioner, Turnaround Strategy Expert and Chartered Director (SA)<\/strong><\/p>

So, you find yourself with a financially distressed company, where you have no choice but to implement business rescue to avoid liquidation? Choose wisely when it comes to the Business Rescue Practitioner (BRP) that you appoint.<\/p>

Understanding Business Rescue<\/strong><\/p>

Business rescue is statutorily mandated for all companies which are financially distressed, if their Boards are of the view that there is a reasonable prospect to rescue them, as defined in the Companies Act 71 of 2008 (hereafter called the Act). The Board of Directors of such a company is required by law to resolve voluntarily to place the company in business rescue the moment it realises that the company is financially distressed. Should a Board fail to resolve to place such a company in business rescue, then it is required, in terms of Section 129(7), to \u201cdeliver a hand-written notice to each affected person [including its creditors and shareholders],\u201d explaining \u201cits reasons for not adopting a resolution contemplated in this section.\u201d<\/p>

Continuing to trade at a time when a company is financially distressed, but without resolving to place that company in business rescue, makes that company\u2019s Board of Directors guilty of reckless trading and exposes its Directors, jointly and severally, to the considerable legal liabilities listed in Sections 77(2) and 77(3) of the Act.<\/p>

It is important to bear in mind that when the Board of a financially distressed company does not initiate business rescue proceedings, Section 131(1) of the Act grants any \u201caffected person\u201d the right to apply to a court of law for the company to be placed in business rescue. Affected persons could be a creditor, a trade union or an employee who is not affiliated to a union.<\/p>

As explained in Section 128(f) of the Act, a company is financially distressed if i) \u201cit appears to be reasonably unlikely that the company will pay all its debts as they fall due and payable within the immediately ensuing six months, or ii) it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months\u201d.<\/p>

While it is vitally important, business rescue has serious legal implications for all of a company\u2019s stakeholders. During business rescue, the Business Rescue Practitioner (BRP) \u2013 who is an officer of the court \u2013 has full control of the company\u2019s affairs and is charged with the responsibility to investigate its affairs and to take the necessary corrective actions. Although they continue to remain in office, members of the Board of Directors of a company which is in business rescue are \u201csubject to the authority of the [business rescue] practitioner\u201d and are required to \u201cattend to the requests of the practitioner at all times.\u201d\u00a0 The BRP may delegate responsibilities to Board members or existing members of the Senior Management Team, and has the authority to dismiss members of the management team and to make new appointments in their place.<\/p>

During business rescue, there is a general moratorium on legal proceedings against the company and its creditors may not take any \u201cenforcement action\u201d against it. Therefore, business rescue offers a financially distressed company a valuable breathing space to get itself re-organised.<\/p>

Who may be Business Rescue Practitioners?<\/strong><\/p>

BRPs are drawn from the ranks of legal practitioners, accounting professionals and management practitioners. According to Section 138(1) of the Act, only someone who meets the following criteria may be appointed as a BRP. S\/he should be a person who:<\/p>