The effects of sections 135 and 136 of the Companies Act 71 of 2008 on business rescue proceedings : a critical analysis

Abstract

South African company law has had provisions for the rescue of financially distressed companies, through the Companies Act 1926 and 1973. These pieces of legislation provided for the rescue of financially distressed entities through a process of judicial management. Judicial management inadequately provided any relief for financially distressed companies and resultantly, it was under utilised. The critics of this rescue mechanism advanced many reasons for its outright failure. South Africa has welcomed a new rescue mechanism for financially distressed companies, called business rescue which is housed in Chapter 6 of the Companies Act 71 of 2008. This study analyses sections 135 and 136 of the Companies Act. The aim is to examine the vast participation rights bestowed upon employees in these two sections, and their effect on the success rate of business rescue as a mechanism of relief for financially distressed companies. Several loopholes are identified in the legislation, which, if uncorrected will pose a great hindrance to the operation of the whole of the rescue procedure as envisaged by Chapter 6. Recommendations are made to enhance the feasibility of the new business rescue provisions, if any success can be expected from the new legislation.