The effect of business rescue and the section 133 moratorium on stakeholders

Abstract

Direction: The business rescue proceedings kicks in with the general moratorium or stay on legal proceedings against the company or its property. Any claims against the company may only be enforced with the consent of the business rescue practitioner or the leave of the court. Research purpose: The moratorium on the rights of claimants may be open to abuse. It gives companies temporary "immunity" to actions brought by creditors which would have been due and actionable. The process may be abused by companies who are not in distress but merely institute business rescue proceedings to stall payments of its debts and to evade its obligations towards its stakeholders. The purpose of the research is to highlight rights that may be affected and possible protection of those rights. Motivation for the research: To investigate the research question: 'whether the avenues put in place by the chapter 6 business rescue proceedings can ensure that all stakeholders benefit and therefore remedy possible misuse?' Research approach and method: The study will include a minimal comparison of processes of other insolvency laws, for example judicial management; liquidation and common law. The study will also compare other international countries such as the United Kingdom ("UK") to provide clarity on how they ensure protection of the rights and duties of all stakeholders involved without compromising the business rescue proceedings. Main findings: Based on the research done, it is clear that the business rescue process is quite a litigious process and requires a lot of finance to effectively implement. The rescue itself is based on financial distress but the process of rescuing is a financial burden to the already distressed companies. Furthermore, the Business Rescue Practitioner is given discretionary powers in respect of the drafting of a plan which will ultimately affect stakeholder, whether they vote or not.