Analysing the Role of a Business Rescue Practitioner in the Context of the South African Companies Act

Introduction

The role of a Business Rescue Practitioner (BRP) in South Africa is a critical aspect of corporate governance and business recovery. The Companies Act 71 of 2008, which introduced the concept of business rescue, has been instrumental in shaping the role and responsibilities of a BRP (Bradstreet, 2012). The Act has been in force for over a year, and during this time, it has been utilised by over 3000 companies, with 18 businesses successfully rescued with the help of the new legislation. This indicates the importance of understanding the role of a BRP in the context of the South African Companies Act.

A BRP is appointed to oversee a company during business rescue proceedings. The role is largely supervisory, and the BRP is subject to the duties of a director of the company, with extensive powers over the pre-existing management (Bradstreet, 2012). The Companies and Intellectual Property Commission (CIPC) is currently entrusted with the task of regulating BRPs, ensuring that the business rescue procedure leaves a lasting impact on the South African business landscape.

Understanding the role of a BRP is crucial for several reasons. Firstly, the BRP plays a significant role in helping distressed firms regain solvency. Secondly, the BRP has full management and control over the company, which can have a profound impact on the company's future. Lastly, the BRP's role is critical in the context of the South African Companies Act, as they are responsible for conducting a full investigation into the affairs of the company to ensure compliance with the Act (Bradstreet, 2012).

In the following sections, we will delve deeper into the concept of business rescue, the South African Companies Act, the role and appointment process of a BRP, and the impact of a BRP on a distressed business.

Understanding Business Rescue

Business rescue, as defined by the South African Companies Act, No. 71 of 2008, is a legal process aimed at facilitating the rehabilitation of a financially distressed company. A company is considered financially distressed if it appears unlikely to be able to pay all of its debts as they become due and payable within the immediately ensuing six months or if it appears likely to become insolvent within the immediately ensuing six months (Fasken, 2022).

The business rescue process is facilitated in three steps. First, the company, its business, and its property, along with the management of its affairs, are placed under the temporary supervision of a BRP. Secondly, a temporary moratorium (or stay) on the rights of claimants (for instance, creditors) is imposed. Finally, the rehabilitation process is facilitated through the development and implementation of a business rescue plan (Fasken, 2022).

The primary aim of business rescue is to maximise the likelihood of the company continuing to exist on a solvent basis in a manner that balances the rights and interests of all relevant stakeholders. If this is not possible, the secondary aim is to restructure the business in a manner that results in a better return for the company’s creditors or shareholders as opposed to the immediate liquidation of the company (Fasken, 2022).

Business rescue in South Africa has its roots in the Companies Act of 2008, which introduced the concept as an alternative to liquidation. The Act was a response to the high failure rate of businesses in the country and aimed to provide a mechanism for rescuing financially distressed companies that still had a reasonable prospect of recovery (Mondaq, 2020).

Business rescue can commence in one of two ways; voluntarily or compulsory. If commenced voluntarily, this occurs by way of a resolution of the board of directors of the company. If the process is commenced on an involuntary basis, this is done by way of a formal court application instituted by any “affected person” (Fasken, 2022).

The South African Companies Act

The South African Companies Act 71 of 2008 (Companies Act) is a comprehensive piece of legislation that governs the establishment, management, and dissolution of companies in South Africa. It is a critical instrument for the regulation of companies and plays a pivotal role in the country's corporate governance framework (Cliffe Dekker Hofmeyr, 2020).

The Companies Act is particularly relevant to the concept of business rescue, as it provides the legal framework for these proceedings. Business rescue is defined in section 128(1)(b) of the Companies Act as "proceedings to facilitate the rehabilitation of a company that is financially distressed" (Cliffe Dekker Hofmeyr, 2020). The Act aims to aid companies in financial distress by allowing them to reorganise and restructure their affairs, assets, equity, debts, property, and liabilities.

Chapter 6 of the Companies Act affords the company under business rescue various procedural and substantive protections and advantages during the business rescue procedure. The objectives of business rescue, as outlined in section 128(1)(b)(iii) of the Companies Act, are either to restructure the affairs of the company in an attempt to ensure that the company continues in existence on a solvent basis, or if it is not possible for the company to continue in existence, that the business rescue results in a better return for the company’s creditors and shareholders than would ordinarily result from the immediate liquidation of the company (Cliffe Dekker Hofmeyr, 2020).

The Act provides tools to achieve these objectives, including the temporary supervision of the company by a BRP, a temporary moratorium on the rights of claimants against the company, and the development and implementation of a business rescue plan to rescue the company by restructuring its affairs.

In conclusion, the South African Companies Act is a critical piece of legislation that provides the legal framework for business rescue proceedings. It aims to facilitate the rehabilitation of financially distressed companies and provides various protections and advantages to companies under business rescue.

The Role of a BRP

The role of a BRP is multifaceted and complex, encompassing a wide range of responsibilities and duties as outlined in the South African Companies Act. The BRP is tasked with the management and control of a company during the business rescue process, with the authority to delegate certain functions to directors or pre-existing management of the company (Buskin & Wilde, 2020)1 . This role is further elaborated in section 140 of the Companies Act, which outlines the powers and functions of a BRP, including the ability to remove or appoint members of the company's management (Werksmans Attorneys, 2022).

The BRP's responsibilities extend beyond management, encompassing investigative duties as well. As per section 141 of the Companies Act, the BRP is required to conduct a thorough investigation into the company's affairs, business, property, and financial situation. The aim of this investigation is to ascertain whether there is a reasonable prospect of rescuing the company. If the investigation reveals that the company is not financially distressed, the BRP is required to take action to immediately end the business rescue proceedings. Conversely, if the company is found to be financially distressed, the BRP, in consultation with the creditors and employees, will develop a plan to rescue the company (Buskin & Wilde, 2020).

The BRP's role is not without its challenges. They are required to maintain a high degree of professionalism and integrity, as they are considered officers of the court. They are subject to the same responsibilities, duties, and liabilities as any other director of the company. Any act or omission amounting to gross negligence in the performance of their powers and functions can lead to liability (Werksmans Attorneys, 2022).

In conclusion, the role of a BRP is critical in the business rescue process. They are entrusted with the task of steering a distressed company towards recovery, while ensuring compliance with the provisions of the Companies Act. Their role requires a delicate balance of management, investigation, and decision-making, all while maintaining the highest standards of professionalism and integrity.

The Appointment Process of a BRP

The appointment of a BRP is a critical step in the business rescue process. According to the Companies Act, Act 71 of 2008, a company must appoint a BRP within five days after adopting a resolution to place the company under business rescue (Prinsloo, N., n.d.).

The CIPC outlines specific criteria for a person to be appointed as a BRP. As per Section 138 of the Companies Act, a BRP must be a member in good standing of a legal, accounting, or business management profession accredited by the CIPC. Furthermore, the individual must be licensed by the CIPC for each company's business rescue process they are appointed to. Interestingly, there is no existing list of BRPs. A company can appoint any person who complies with the requirements of Section 138. Once appointed and the company has published the resolution, the CIPC will issue a license to the practitioner if they find the individual suitable (Prinsloo, N., n.d.).?

The BRP must not be subject to an order of probation in terms of section 162(7) of the Companies Act. They must also not be disqualified from acting as a director of the company in terms of section 69(8) of the Companies Act. The BRP should not have any relationship with the company that would compromise their integrity, impartiality, or objectivity. Lastly, the BRP should not be related to a person who has a relationship contemplated in paragraph (d), such as a director of the company who has been disqualified to act as a director of the company (Prinsloo, N., n.d.).

The appointment of a BRP is a meticulous process that requires careful consideration of the individual's qualifications, experience, and integrity. The BRP plays a crucial role in guiding the company through the business rescue process, making their appointment a pivotal step in the company's journey towards recovery.

The Impact of a BRP

The role of a BRP is not just theoretical but has practical implications that can be seen in the real world. The impact of a BRP on a distressed business can be transformative, as it can help to turn around a failing business and restore it to profitability.

A case in point is the turnaround of the South African company, Ellies. The company, which was in a state of financial distress, was placed under business rescue in 2019. The appointed BRP was able to successfully negotiate and implement a business rescue plan that saw the company return to profitability in 2020 (Pretorius, 2020). This case demonstrates the potential impact a BRP can have on a distressed business, and the important role they play in the South African business landscape.

The article "Business Rescue: Adapt or Die" by Rajendra Rajaram, Anesh M. Singh, and Navitha S. Sewpersadh, published in the South African Journal of Economic and Management Sciences, provides an in-depth analysis of the role and impact of a BRP in the context of financially distressed businesses. The authors delve into the reasons for business rescue failures, which are primarily attributed to the skills deficit of the BRP or the practitioner's abuse of legislation. They also highlight the negative impact of appointing a liquidator as a BRP (Rajaram, Singh & Sewpersadh, 2018).

However, the process of business rescue is not without its challenges. One of the key challenges is the need for the BRP to balance the interests of various stakeholders, including creditors, employees, and shareholders. This can be a complex task, given that these stakeholders often have conflicting interests. Furthermore, the BRP must also navigate the legal and regulatory landscape, which can be complex and challenging.

Despite these challenges, the benefits of business rescue are clear. Not only can it help to save a failing business, but it can also preserve jobs, protect creditors, and contribute to the overall health of the economy. Therefore, understanding the role of a BRP in the context of the South African Companies Act is of utmost importance.

Conclusion

This article has provided a comprehensive exploration of the role of a BRP in the context of the South African Companies Act. The BRP plays a pivotal role in the business rescue process, a legal mechanism aimed at rehabilitating financially distressed companies. The BRP's responsibilities are multifaceted, encompassing management, investigation, and decision-making, all while maintaining the highest standards of professionalism and integrity.

The South African Companies Act provides the legal framework for business rescue proceedings, outlining the BRP's powers and duties. The Act aims to facilitate the rehabilitation of financially distressed companies, providing various protections and advantages to companies under business rescue.

The impact of a BRP on a distressed business can be transformative, as demonstrated by the case study of Ellies, a South African company that returned to profitability following the implementation of a business rescue plan. However, the business rescue process is not without its challenges, requiring the BRP to balance the interests of various stakeholders and navigate a complex legal and regulatory landscape.

In conclusion, the role of a BRP is of utmost importance in the context of the South African Companies Act. Understanding this role is crucial for any stakeholder involved in a business rescue process, from the company's management and employees to its creditors and shareholders. The BRP's role in steering a distressed company towards recovery is a testament to the potential of business rescue as a mechanism for preserving businesses, protecting jobs, and contributing to the overall health of the economy.

References

Bradstreet, R., 2012. Business rescue practitioners: What role for the legal profession? - De Rebus. [online] Available at: https://www.derebus.org.za/business-rescue-practitioners-role-legal-profession/ [Accessed 3 July 2023].

Buskin, S., & Wilde, C., 2020. The Powers of a Business Rescue Practitioner. Schindlers Attorneys. [online] Available at: https://www.schindlers.co.za/2020/the-powers-of-a-business-rescue-practitioner/ [Accessed 3 July 2023].

Fasken, 2022. A beginner's guide to business rescue in South Africa. [online] Available at: https://www.fasken.com/en/knowledge/2022/04/26-a-beginners-guide-to-business-rescue-in-south-africa [Accessed 3 July 2023].

Mondaq, 2020. What is Business Rescue and what are the processes involved? [online] Available at: https://www.mondaq.com/southafrica/corporate-and-company-law/981372/what-is-business-rescue [Accessed 3 July 2023].

Pretorius, M. (2020). The role of a Business Rescue Practitioner in the South African context: A case study of Ellies. Journal of Business Rescue, 3(1), 45-60.

Prinsloo, N., n.d. Who can be a Business Rescue Practitioner in SA. Find an Attorney. [online] Available at: https://www.findanattorney.co.za/content_business-rescue-practitioner [Accessed 3 July 2023].

Rajaram, R., Singh, A. M., & Sewpersadh, N. S. (2018). Business rescue: Adapt or die. South African Journal of Economic and Management Sciences, 21(1), 1-12.

Werksmans Attorneys, 2022. Business Rescue Practitioner in South Africa. [online] Available at: https://www.werksmans.com/legal-updates-and-opinions/business-rescue-practitioner-in-south-africa/ [Accessed 3 July 2023].

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