Companies in financial distress during business rescue proceedings

Abstract

The new Companies Act has recently been introduced in South Africa with specific focus on companies in financial distress and bringing those companies back to their wealth. Prior to the introduction of the new Companies Act, South Africa made use of the judicial management procedure in terms of the Companies Act No. 61 of 1973. This was not a very successful mechanism for distressed companies in South Africa as the Old Act lacked formalised focus on business rescue and mainly focused on terminating the companies through a liquidation process. The fundamental rationality of business rescue proceedings is that a company facing financial difficulty can be rescued which will in the long term result in job preservation, better returns for creditors and higher going concern values for the company, as opposed to simply liquidating the company. This study is thus meaningful in order to ascertain whether or not the introduction of business rescue proceedings will change the culture and/or overall understanding on the effectiveness of rescuing distressed companies in South Africa. Furthermore, this study will also assess and compare South African legislation pertaining to the business rescue regime as provided for in the Companies Act, with similar regimes in Australia and the United Kingdom.