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trading. Any income then derived will go into the insolvent estate, and
may not be used by the company. Once the date has been selected
the shareholders of the company must resolve, by special resolution, to
place the company under liquidation and an accompanying court
application has to be submitted to the High Court. The court will first
issue a provisional liquidation order before issuing the final order and
notice must be given to all creditors before the final liquidation order is
granted. Once the provisional liquidation order is granted no creditor
may institute any legal action against the company and any legal
Commercial appoint a liquidator who will determine the assets of the company,
action instituted will be suspended. The Master of the High court will
hold meetings with creditors, collect outstanding debt, sell assets, pay
creditors and finalise the estate, after which the matter will be closed.
To initiate business rescue proceedings voluntarily the board of the
company may resolve to place the company under business rescue
if the company is financially distressed and there appears to be a
reasonable prospect of rescuing the company. The resolution may
not be adopted by the board if liquidation proceedings have been
initiated by or against the company and will have no force or effect
until it has been filed with the Companies and Intellectual Property
Commission (“CIPC”). The company must notify all its creditors and
appoint a business rescue practitioner (“BRP”) within five days after the
resolution has been adopted and filed with CIPC. During business rescue
proceedings no legal action including enforcement action may be
instituted against the company, except with written consent thereto by
the BRP or with leave of a court. The BRP is responsible for assessing the
affairs of the company, holding meetings with creditors, other affected
persons and management of the company and compiling a business
rescue plan which needs to be voted on and accepted by all affected
persons. The business rescue plan must indicate amongst others the
probable dividends creditors would have received if the company
was placed under liquidation and must prove that under business
rescue the company is able to generate a better monetary return for its
creditors than in the event of liquidation. The plan must further set out
the advantages of business rescue over liquidation. Once the business
rescue plan is adopted it binds the company, creditors and holders of
any securities against the company.

Business rescue compared to liquidation provides for the company’s
debt to be managed and contracts restructured and reorganised
in order for the company to continue to trade on a solvent basis
rather than selling off all of the company’s assets and the company
being shut down as in the case of liquidation. If it does happen that
business rescue is unsuccessful, the BRP may apply to court to have
the company liquidated. The business rescue process is therefore a last
lifeline to try and turn a company around before it has to close its doors
when liquidated.

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