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Revealed: Two important features of business rescue proceedings you must know about before you take the plunge

by , 18 March 2014
Statistics show that over 3 766 businesses are liquidated every year in South Africa. One of the contributing factors to this high number is that many business owners don't understand the concept of business rescue. Business rescue is aimed at rehabilitating the company's financial status and preventing job losses by avoiding liquidation. If you want to have a good understanding of this process, make sure you're aware of the two important features of business rescue proceedings.

The Companies Act contains guidelines regarding business rescue proceedings.

In the Act, there are two important features of business rescue proceedings that you need to know about…

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Two important features of business rescue explained

#1: Adoption of a business rescue plan

In an article published on Polity.org.za, legal experts, Eric Levenstein and Lauren Barnett from Werksmans Attorneys say that a business rescue plan must be approved by creditors and, if necessary, by shareholders if their rights are affected.

Once the plan is approved, your business rescue practitioner will implement it. The plan will provide details of the manner in which the practitioner envisages that the company will be rescued.

Make sure your business rescue practitioner includes these three things in the business rescue plan.

#2: Moratorium

According to the experts, one of the most important elements of the business rescue process is the moratorium imposed on the institution of legal proceedings.

The experts say the Act makes provision for a general moratorium on legal proceedings, including any enforcement action, against a company, or in relation to any property belonging to the company, or lawfully in its possession, during business rescue proceedings.

They explain that the moratorium is designed to provide the company with time, while the business rescue practitioner attempts to rescue the company through the preparation and implementation of the business rescue plan.

'Without this element, a creditor would be able to enforce its rights during the process or apply for the liquidation of the company. This would be in conflict with the very spirit and purport of business rescue proceedings and is accordingly not permissible in terms of the Act.'

Knowing about the two important features of business rescue proceedings will bring you a step closer to understanding how this process works.

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