An appraisal of the new South African business rescue procedure

Abstract

Introduced into our law in 2011, Chapter 6 of the Companies Act 71 of 2008 allows for the restructuring of companies that are reasonably unlikely to be able to pay all of its debts as they become due and payable or where it appears to be reasonably likely that the company will become insolvent, within the immediately ensuing six month period. The legislation contemplates the appointment of a business rescue practitioner who is obligated to supervise the ongoing business of the company, together with its board of directors, by way of the implementation of a business rescue plan, where the practitioner can “rescue” the company and achieve a position where the company can continue to trade on a solvent basis into the future. If this is not possible, the practitioner must deliver to creditors and shareholders a better dividend than would result from the immediate liquidation of the company. Some four years after implementation, this study analyses the history of the development of insolvency law in South Africa with a focus on the shift from a pro-creditor to a pro-debtor rescue culture, the failure of judicial management and the urgent need for the establishment of a viable and effective restructuring mechanism for financially distressed companies in South Africa. A brief overview of international standards of best practice in insolvency and corporate rescue models applicable in jurisdictions such as the US, the UK, Canada and Australia serves to set the bench mark for the establishment of a workable business rescue regime for corporate South Africa. An appraisal of the South African business rescue legislation with an eye on international corporate rescue themes and international best practice is undertaken to establish if the South African business rescue model “stacks up” with those applicable in international jurisdictions. Several shortfalls and weaknesses in the new rescue procedures are identified and certain recommendations for improvements are made. The study concludes with views on the efficiency and effectiveness of the South African business rescue model and what the future holds for South African restructuring practice in the years ahead.