The viability of business rescue proceedings on small to medium enterprises

Abstract

In 1996, South Africa became a constitutional democracy where the Constitution, rather than Parliament, governs the rule of law. Among the many commitments of the constitutional dispensation was the eradication of poverty and inequality, socio-economic empowerment and the realization of human rights for everyone particularly, the rights to dignity, equality and freedom. The above-mentioned rights could be achieved where the economic resources of the Republic are enjoyed by everyone without fear, favor or prejudice. In South Africa, SMEs play a crucial role in the economy by employing the majority of skilled and unskilled workers. By employing a majority of workers, SMEs contribute the majority of the Republic’ s public purse. However, the survival of SMEs has been a huge challenge over the years since most of them are under-capitalized, are family business and are historically excluded from mainstream financial resources. Traditionally, under the previous regime, financially distressed companies, including SMEs, could be revived through judicial management. The Companies Act 71 of 2008 replaced judicial management with business rescue which also is designed to resuscitate financially distressed companies rather than liquidate these entities. Whether the incumbent legal framework is effective for the survival of SMEs and preserving them as going concern has been a subject of debate. This paper investigates the viability of the business rescue legal framework in South Africa, with focus on SMEs. The paper asks whether much has or is being done to prevent SMEs from going under, and preserving their role as a backbone of the South African economy.