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Your business rescue questions answered

by , 20 February 2014
There are three commonly asked questions regarding business rescue. Read on to find out what they are and get the answers...

Director of business rescue and insolvency at law firm Werksmans, Eric Levenstein says companies in South Africa don't yet realise the full potential of business rescue, especially when it comes to saving jobs, BDlive reports.

At the moment only 14% of the close to 4,000 companies facing liquidation in South Africa each year are opting for business rescue.

Levenstein says the costs are not prohibitive, as in liquidations the liquidator would claim 10% of the money received whereas tariffs for business rescue start at R1 250 an hour, depending on the size of the company.

So why are companies scared of business rescue?

Perhaps one of the issues that prevent companies in financial distress from opting for business rescue is that they're not fully informed on the matter.

In an effort to change this, today we're answering the common questions regarding business rescue so businesses can realise they have nothing to fear.

Three answers to commonly asked business rescue questions

Dr Rutendo Nyamuda in Destiny Man gives you answers regarding business rescue:

#1: What are the warning signs that a business may be heading for a financial crisis?

If your forecast shows that cash flow problems are going to lead to a situation where the company can't pay its ordinary debts as they arise on a monthly basis, then the company should be placed in business rescue, by the board.

The question that you need to ask, says Dr Nyamuda, is: 'Will the company be able to pay its debts in the ordinary course over the next six months or 12 months?

#2: How long do business rescue proceedings last and what do the proceedings entail?

The Companies Act makes provision for a three-month period, but it can be extended in special circumstances.

Dr Nyamuda explains that the business rescue practitioner must call a meeting of creditors and shareholders within ten days of being appointed. At this meeting, the practitioner will establish the parameters of the company's distress. Thereafter, the practitioner will draw up a business plan designed to ensure the survival of the company. This must be adopted by the creditors and shareholders.

#3: If a company is refused business rescue is there another option besides liquidating the company?

Business rescue and liquidation can be avoided if a financier steps into the arena to save the company. It really boils down to the funding needed to keep paying debts as they arise, concludes Dr Nyamuda.

If you need to apply for business rescue, but don't know how checkout this article.

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