It is imperative that companies in financial distress prioritise their continued existence and consider business rescue as an alternative to liquidation. Business rescue is a robust procedure that allows South African companies in financial distress or trading in insolvent circumstances to file for business rescue and with the assistance of a business rescue practitioner, reorganise and restructure the business with the aim of returning it to a more stable and profitable entity.
The role of the business rescue practitioner ("BRP") is to supervise a company in business rescue. Below is a brief overview of the role of the BRP, their appointment and removal from office and the extensive powers and duties conferred upon them.
How is a Business Rescue Practitioner appointed
Where a board places a company into business rescue by way of a resolution, the board will appoint the BRP.
Where a court places the company into business rescue the court will appoint an interim BRP. The court's appointment is subject to ratification by the holders of a majority (in value) of the independent creditors' voting interests attending the first meeting of the creditors.
Required qualifications of the Business Rescue Practitioner
According to section 131(8) of the Companies Act 71 of 2008 ("the Act"), a BRP must:
- be a member of good standing of a legal, accounting or business management profession accredited by CIPC;
- be licenced by CIPC to act as a BRP;
- not be under probation;
- not be disqualified from acting as a director of a company;
- not have any conflict of interest; and
- not be related to a director of the company.
The size of the company placed under business rescue will determine whether a junior, senior or experienced BRP is required.
Removal
A BRP may only be removed from office by order of court.
Section 130 of the Act allows an affected person to apply to court to set-aside the appointment of the BRP if:
- the BRP is not sufficiently qualified; or
- is not independent of the company or its business management; or
- clacks the necessary skills considering the company's circumstances.
Such application may not be brought by a director in his capacity as director or by the board which resolved to place the company under business rescue. This application can also only be brought prior to the adoption of the business rescue plan.
Alternatively, an affected person may, at any time, and regardless of how the company was placed into business rescue, apply to court in terms of section 139 of the Act for the removal of the BRP on the following grounds:
incompetence or failure to perform duties; or
- failure to exercise the proper degree of care in the performance of the practitioner's functions; or
- engaging in illegal acts or conduct; or
- absence of the required qualifications; or
- conflict of interest or lack of independence; or
- the practitioner is incapacitated and unable to perform the functions of that office, and is unlikely to regain that capacity within a reasonable time.
If a BRP is removed from office in terms of section 139, dies or resigns, the creditor or company who nominated the BRP must appoint a new BRP. An affected person retains the right to make an application to court to set aside the new appointment.
Powers and duties
The BRP assumes full management control of the company and may delegate any of his/her powers or functions to members of the pre-existing management of the company.
Accordingly the BRP assumes, in addition to his other statutory and professional responsibilities, the same fiduciary responsibility as a director and the BRP may be held personally liable for damages or loss suffered, acting in his/her capacity as BRP, as a result of the contravention of his/her professional obligations.
The BRP must consult with creditors, other affected persons, and management of the company, investigate the affairs, business and financial position of the company in order to determine whether there is a reasonable prospect of rescuing the company. Most importantly, the BRP must develop a workable business rescue plan which, once adopted, must be implemented by the BRP.
For detailed advice and/or assistance with disputes related to the rights, duties and obligations of the BRP, please contact us
Co-authored by Tiffany Agulhas
Originally published Clyde & Co, May 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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