Understanding Business Rescue and Business Rescue Practitioners: Navigating Financial Distress in South African Companies

---

Understanding Business Rescue and Business Rescue Practitioners: Navigating Financial Distress in South African Companies

• 19 June 2023
• Business Rescue & Business Valuations
• South African Accounting Academy

Business rescue is a process designed to facilitate the rehabilitation and turnaround of financially distressed companies. A Business Rescue Practitioner (BRP) needs to facilitate this process which is defined in the Companies Act of 2008.

You can download Chapter 6 of the Companies Act 2008 to gain deeper insights into the intricacies of business rescue proceedings in South Africa.

A BRP is an individual appointed to oversee and manage the business rescue process. The BRP's primary role is to take control of the company's operations, develop and implement a business rescue plan, and work towards rehabilitating the company's financial affairs. Their objective is to save the company from liquidation by restructuring its operations, finances, and debt obligations.

The appointment of a BRP typically occurs when a company is financially distressed or facing the possibility of insolvency. It can be initiated by the company's board of directors, shareholders, or creditors. Once appointed, the BRP assumes full control and powers over the company's affairs and is responsible for acting in the best interests of all stakeholders involved, including shareholders, employees, creditors, and the broader community.

The business rescue process allows for a temporary suspension on legal actions against the company, providing a breathing space for the BRP to develop and implement a feasible rescue plan. During this period, the BRP works closely with stakeholders to negotiate and restructure debts, renegotiate contracts, and make necessary operational changes to ensure the company's survival and future viability. No liquidation proceedings must have commenced against the company when a decision is taken to start business rescue proceedings.

It's important to note that the role of a business rescue practitioner in South Africa is highly regulated, and individuals must meet specific qualifications and criteria to act as BRPs. They are required to be licensed and registered with the Companies and Intellectual Property Commission (CIPC), and they must adhere to professional and ethical standards set by the legislation.

For more information on how to become a licenced business rescue practitioner, view the SA Accounting Academy webinar here.

What section of the Companies Act of 2008 relates to business rescue?

The provisions related to business rescue practitioners in South Africa are primarily outlined in Chapter 6 of the Companies Act of 2008. This chapter, titled "Business Rescue," sets out the legal framework and procedures for initiating and conducting business rescue proceedings.

Specifically, Section 138 of the Companies Act defines the role and functions of a business rescue practitioner. It outlines the qualifications and requirements for individuals to act as BRPs and details their powers, duties, and liabilities during the business rescue process.

Section 140 of the Act deals with the appointment of a business rescue practitioner. It specifies who can initiate the appointment, how the appointment is made, and the necessary documentation and procedures involved.

Section 141 outlines the effect of business rescue proceedings and the powers of the BRP. It describes the moratorium on legal actions against the company, the powers of the BRP to manage the company's affairs, and the obligations of stakeholders to cooperate with the BRP.

Furthermore, the Act includes provisions regarding the preparation and approval of a business rescue plan (Section 150), the voting on the plan (Section 152), and the implementation of the plan (Section 155), among other related aspects.

It's important to consult the Companies Act of 2008 directly or seek professional legal advice for a comprehensive understanding of the specific provisions and requirements regarding business rescue practitioners in South Africa.

For more information on the Companies Act of 2008, view the SA Accounting Academy course here.

Who can be licensed as a business rescue practitioner?

List of Accredited Professional Bodies whose members are eligible to be licensed as business rescue practitioners.

Accredited Professional Bodies:

• Institute of Accounting and Commerce (IAC)
• South African Institute of Professional Accountants (SAIPA)
• Chartered Institute for Business Accountants NPC (CIBA) (previously known as (SAIBA))
• South African Institute of Chartered Accountants (SAICA)
• The Association of Chartered Certified Accountants (South Africa) NPC (ACCA)
• The Institute of Business Advisors NPC (IBASA)
• The Chartered Institute of Management Accountants (CIMA)
• Turnaround Management Association (TMA)
• South African Restructuring and Insolvency Practitioners Association NPC (SARIPA)
• The Institute of Management Consultants and Master Coaches of south Africa NPC (IMCSA)
• Legal Practice Council (LPC)

CIPC maintains a list of Accredited Professional Bodies which can be found here.

Who can initiate business rescue?

• The board of directors;
• By an application to court when the business is financially distressed;
• Various affected persons by application to court (including shareholders, creditors, registered trade unions and employees).

How do I apply for a license to be a business rescue practitioner (BRP) with the CIPC?

More information about licensing as business rescue practitioner (COR126.1) can be found here.

What are the filing requirements for appointment of a business rescue practitioner?

More information about the filing requirements for appointment of business rescue practitioner (COR123.2) can be found here.

What qualifications are required to become a BRP?

Section 138(1) of the Companies Act sets out the qualifications to apply for a license to act as a BRP.

What are professional bodies involvement in the licensing of BRPs?

Section 138(1) of the Companies Act provides that a person may be appointed as a business rescue practitioner if that persons is a member in good standing of a legal, accounting or business management profession accredited by the Commission. CIPC provides a list of accredited bodies whose members are eligible as business rescue practitioners.

What tariffs of fees do business rescue practitioners charge?

The Companies Act, 71 of 2008 section 143 deals with remuneration for business rescue practitioners. Regulation 128 - Tariff of fees for business rescue practitioners Section 128(1) The basic remuneration may not exceed:

1. R1,250 per hour, to a maximum of R15,625 per day (inclusive of vat) in the case of a small company;
2. R1,500 per hour, to a maximum of R18,750 per day (inclusive of vat) in the case of a medium company;
3. R2,000 per hour, to a maximum of R25,000 per day (inclusive of vat) in the case of a large company;

128(3) Practitioner is entitled to be reimbursed for actual costs of disbursements made or expenses incurred.

Can a BRP be appointed to any company?

The Companies Act, 2008 (Act No. 71 of 2008) Regulations have specific requirements in regulation 127(3) on the appointment of specific levels of BRPs for different sizes of companies, based on their Public Interest Score (PI Score). The table below how the BRP Level requires for the company size.

 

Company	BRP Level
Large Companies: Any company, other than a state owned company, whose PI score is 500 or more	Senior Practitioner
Medium Companies: Any public company whos PI Score is less than 500; or Any other company, other than a state owned company, whose PI Score is at least 100 but less than 500	Experienced Practitioner
Small Companies: Any company, other than a state owned or public company who’s PI Score is less than 100	Junior Practitioner

Download the relevant sections of the Companies Act of 2008 to gain deeper insights into the intricacies of business rescue proceedings in South Africa. Empower yourself with knowledge and be prepared to face the challenges of financial distress head-on.

Remember, the information provided in this article is intended for informational purposes only and should not be considered legal advice. It is advisable to consult with your professional bodies or CIPC for specific guidance tailored to your unique circumstances.

0 COMMENTS

LEAVE A COMMENT