Trust Maanda
Legal Position
CORPORATE rescue is a measure for the temporary supervision of the financially distressed company to bring it back to viability so that it continues as a going concern.
Business rescue proceedings by their very nature must be conducted with the maximum possible expedition.
The Insolvency Act (the Act) provides two ways of commencing corporate rescue proceedings.
The first procedure provides that the board of a company or its shareholders can make a resolution to institute corporate rescue proceedings. This procedure is voluntary and does not require the company to approach a court.
The resolution placing the company under supervision can only be taken if the company is financially distressed, in that it is unable to pay its debts, and there appears to be reasonable prospects of rescuing the company. The resolution, in order to be effective, must be filed with the Master of the High Court, the Registrar of Companies and the Registrar of Cooperative Societies, in the case of a cooperative society.
The company must notify every “affected person” and appoint a corporate rescue practitioner who satisfies the requirements of the Act.
The corporate rescue practitioner is responsible for overseeing management of the company during the corporate rescue proceedings.
The second procedure, is made by way of an application to court, by an affected person, for an order commencing corporate rescue proceedings.
An affected person may apply to a court at any time for an order placing the company under supervision and commencing corporate rescue proceedings.
The affected person must then follow certain formalities required by the Act, such as serving a copy of the application on the company, the Master and the Registrar of Companies; and notifying each affected person of the application by standard notice.
After considering an application, the court may make an order placing the company under supervision, and commencing corporate rescue proceedings if the court is satisfied that the company is financially distressed; or meets certain criteria.
The court may dismiss the application, together with any further necessary and appropriate order, including an order placing the company under liquidation.
A corporate rescue practitioner is appointed to manage the affairs of the company.
Corporate rescue imposes a general moratorium on commencing or continuing with legal proceedings, including enforcement of actions, against the company or in relation to any property owned by the company or lawfully in its possession, in any forum, for the duration of the corporate rescue proceedings.
The moratorium, is automatic and comes into effect on commencement of corporate rescue. During business rescue proceedings, no legal proceeding, including enforcement action, against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with in any forum.
Proceedings can be commenced against a company under corporate rescue where there is a written consent of the practitioner; or with the leave of the court, and in accordance with any terms the court considers suitable; among other specified grounds.
The mere filing of the application with the Registrar of the High Court, has the effect of commencing corporate rescue proceedings.
The temporary moratorium regarding the suspension of the rights of creditors starts at this stage.
The law requires the protection of the troubled company’s assets so that corporate rescue practitioners do not inherit an empty vessel.
In respect of contracts of employment, the general rule is that employees who were employed by the company before commencement of corporate rescue proceedings will remain employed with no change to their terms and conditions of employment.
The board of directors is deemed dissolved during corporate rescue proceedings, and directors can no longer exercise their functions as directors. The management of the company is vested in the corporate rescue practitioner.
A corporate rescue practitioner is appointed to oversee a company during business rescue proceedings. The powers of a corporate rescue practitioner are set out in the Act and include full management and control of the company in substitution of the board.
He or she can delegate any of his or her powers to a person who was part of the board or pre-existing management of the company, appoint any person as part of management of a company to develop a corporate rescue plan, and implement any corporate rescue plan. The rescue practitioner must draw up a corporate rescue plan in consultation with creditors, affected persons, and management of the company, showing how the rescue of the company will be achieved.
A corporate rescue plan must be approved by creditors and shareholders at a meeting convened in terms of the Insolvency Act.
There is no provision for the automatic or compulsory termination of corporate rescue proceedings.
Corporate rescue proceedings should not take more than three months. Corporate rescue proceedings are terminated by a court order, the filing of a notice of termination with the Master, or by rejection of substandard implementation of a corporate rescue plan.
TRUST MAANDA is a legal practitioner and a partner at Maunga Maanda And Associates. He writes in his personal capacity. He can be contacted on +263772432646
The procedure, effect of corporate rescue
