INSOLVENCY & LIQUIDATION : Business rescue — lifeline or delay tactic for struggling companies?

The Constitutional Court's recent ruling has clarified some aspects of South Africa's business rescue framework, but its effectiveness remains debated. Business rescue (BR) is a process aimed at rehabilitating financially distressed companies, which can either result in a return to business or surrender. Under the Companies Act 71 of 2008, BR was introduced in 2011 to provide companies with a way to stay afloat without going into bankruptcy.

The process involves hiring an independent BR practitioner, who oversees the rehabilitation or surrender of the company and its debts.

However, there are differing opinions on the efficacy and fairness of the business rescue process. While some argue that BR can help save companies when done correctly, others contend that it can be abused to delay inevitable liquidation. Koos Benadie, a director at Barnard Incorporated Attorneys, suggests that BR is a good process if executed properly, emphasizing that it should not be a tool to protect shareholders and directors at the expense of financiers.

Eric Levenstein, head of insolvency and business rescue at Werksmans Attorneys, adds that early involvement of BR advisers can improve the chances of success.

Nonetheless, critics like Julian Jones, a partner at Webber Wentzel Attorneys, maintain that not all companies are suitable candidates for BR, as some are beyond saving. Blacky Komani, the former CEO of 1Time, an air carrier that went into liquidation, highlights certain challenges associated with BR in the airline industry, such as the tight time frames required and the potential cash-flow issues that may arise due to the process's upfront costs.