Business rescue in South Africa

Presently, there is a world-wide trend towards business rescue instead of liquidation. 

Ironically, South Africa as early as 1926 already was the first country outside the USA to have implemented business rescue legislation.  In the current Companies Act it appears in the form of Section 427 (Judicial Management) and and Section 311 (Compromise, Amalgamation, Arrangement and Take-Overs). 

Judicial management, however, has been a complete failure (Loubser, 2004). 

South Africa therefore is in a position of having to pay catch-up after having been an early leader with a poor product decades ago.

The article above by Professor Anneli Loubser provides a complete overview of judicial management.

See References below for Professor Loubser's academic articles on business rescue.

This section on business rescue in South Africa comes in 5 parts:

• First, the context of business rescue is explored with regard to its objective and goals, justification, requirements for success and success rates.  it shows how business rescue is designed to overcome the disadvantages of workout, but that it comes with its own disadvantages.  It is also demonstrated that business rescue is meant for economically viable companies only, and that economically unviable companies entering the process is the cause of of its high failure rate.
• Second, Chapter 6 legislation and regulations are summarised in terms of the process, plan, business rescue practitioner, and implications for various stakeholders. 

Companies Act No. 71 of 2008

New business rescue legislation, contained in Chapter 6 of the Companies Act No. 71 of 2008, was signed into law on 8 April 2010 by the President, gazetted the next day, but is yet to be proclaimed..

It was preceded by the King III Report on Governance, accompanied by practice notes for business rescue, on 1 September 2009.  Draft company regulations, including business rescue regulations, were published on 22 December 2009 for comment.  New draft regulations will be published, but the date is unknown at this stage.

Companies Amendment Bill, 2010

New draft business rescue legislation, contained in Chapter 6 of the Companies Amendment Bill, 2010 was published on 28 July 2010.

This draft proposes amendments to the Companies Act, 2008 to:

• Better provide for the administration of the principal Act, and in particular to establish a proper foundation for certain necessary regulations;
• Continue the mechanisms established under section 335 of the Companies Act, 1973 to allow for the transfer of registration of foreign companies to the jurisdiction of the Republic;
• Address significant errors, infelicities and ambiguities that could result in misapplication of the principal Act in a manner contrary to its underlying policy; and
• Correct various numbering, spelling, punctuation, reference, alignment and typographical errors in the text.

USAID Financial Sector Program policy reform initiative

An USAID Financial Sector Program policy reform initiative is currently under way to assist the authorities in connection with amendments to key areas of the financial sector, including the Company Act, National Credit Act; and Insolvency Act. The ultimate aim of the project will be to prepare a mapping of the current legal frameworks pertaining to business rescue, liquidation, and insolvency, with a view to developing policy recommendations to strengthen these systems.

One may therefore expect further developments before the Companies Amendment Bill becomes an Act.

New legislation implementation news

The dti on 28 July 2010 announced the following on its website: "During the consultation process, sections of the Act were found to be imbued with errors, while some of the regulations were considered ultra vires (beyond the powers), due to their not empowering provisions in the Act, nor enabling the Minister to issue them in order to achieve the Act's objectives.  Amendments were thus required to rectify these provisions and ensure improved administration of the Act, hence the publication of the Companies Amendment Bill, 2010."

It is not yet clear by when comments can be received on the Companies Amendment Bill and new draft Company Regulations.

The Companies and Intellectual Property Office (CIPRO) announced on 31 July 2010 in “Update on Implementation of the Companies Act, 2008” (2010) that the new Companies Act will be implemented on 1 October 2010.

According to “Trade and Industry Releases Draft Companies Amendment Bill,” 2010, the amendment bill is still to be tabled in Parliament, it will be be subject to due process including a thirty day public comment period involving public hearings, and that current target date for implementation of the new act is October 2010. 

Certain references reviewing or commenting on Chapter 6 as a whole are discussed below.  Other references which focus on aspects of Chapter 6 are not listed here but at the bottom of web pages discussing those aspects.

To view an introductory video on Chapter 6 business rescue, see Harris (2010).

For an excellent summary of current issues around Chapter 6 business rescue, see “A Roundtable Discussion on the New Companies Act and Its Business Rescue Provisions” (2010).

The most comprehensive critical analysis of Chapter 6 business rescue is provided by Professor Anneli Loubser in her doctoral thesis "Some Comparative Aspects of Corporate Rescue in South African Company Law" (Loubser, 2010a).  The first summarised part of her concerns and questions are available as an academic article "The Business Rescue Proceedings in the Companies Act of 2008: Concerns and Questions (Part 1)" (Loubser, 2010b).

Another useful critical analysis is that of Rushworth (2010) (A Critical Analysis of the Business Rescue Regime in the Companies Act 71 of 2008: Business Rescue: Part III").  Jonathan Rushworth (now retired) was a leading attorney in the UK at the time.  He was a member of the International Reference Team for Company Law Reform in South Africa and present when Chapter 6 of the Companies Bill, 2007 was presented by the dti in Pretoria in March 2007.