The impact of the new business rescue provisions on the rights of creditors

Abstract

Prior to the enactment of the Companies Act 71 of 2008 (the 2008 Act), financially troubled companies were either liquidated or placed under the supervision of a judicial manager who was trusted with rehabilitating or restoring the company to a profitable going concern. Judicial management, as the process was called, did not achieve the results that were anticipated by the legislature and hence became a dismal failure. One of the reasons advanced for its failure was the fact that it was creditor-oriented. As a result of its failure, new legislation (Companies Act 71 of 2008) was promulgated and came into effect in May 2011. Chapter 6 of the 2008 Act introduced the business rescue regime in line with other international jurisdictions as a replacement for judicial management and this was seen as a major improvement as the new business rescue regime does not only seek to save the company as a going concern, but also aims at maintaining a proper balance between the interests of different stakeholders. This research will analyze the impact of business rescue on creditors by assessing the effectiveness of business rescue proceedings and also focus on the extent to which Chapter 6 has embraced debtor-friendliness by scrutinizing the requirements for the proceedings and the procedure itself.