In difficult economic and political circumstances, as currently experienced by SA, members of close corporations or directors of companies often find that the business of the CC or the company is no longer operating profitably. This is when the question about liquidation or business rescue is posed and consideration should be given to which is the best option for the company or CC.
If the company or CC can not reasonably pay all its debts as and when it becomes payable in the next six months or if there is a reasonable likelihood that the company or CC will become insolvent in the next six months, the obligation rests on the company or CC to decide whether it is a candidate for business rescue or otherwise liquidation.
In a business rescue, room is afforded to a company or CC to work out a rescue plan in consultation with all stakeholders in terms of which transactions and/or contracts are restructured or canceled to improve the company or CC's cash flow or debt position in order to continue its normal trading activities. In consultation with the creditors, a plan is drawn up and the Business Rescue practitioner is obliged to implement the plan.
If the plan fails, the Business Rescue Practitioner will put the company or CC into liquidation.
If it is clear that the company or CC cannot at all fulfill its obligations and is insolvent, business rescue will not be the appropriate course of action and the company or CC should be liquidated. Parties often take shortcuts and think that liquidation can be prevented by placing the company or CC in business rescue, instead of liquidation. If the company or CC does not have a good chance of rescue from the start and there is no feasible business rescue plan, the directors or members will only waste money and time by considering business rescue. It will simply not work.
The big difference between business rescue and liquidation is that in the case of business rescue, a plan is developed to restructure the company's finances and contracts so that it can survive financially and continue as a healthy business. If a company's liabilities exceed its assets, it is insolvent. In such an instance it would not be a candidate for business rescue and should be placed in liquidation.
Business rescue and liquidation can be initiated by a special resoltion or by a court application as the case may be.
For any further information or advice regarding the above, please contact Danie Acker at Rauch Gertenbach Attorneys, tel 044-6019900 or by e-mail at email@example.com .