CRS Business Rescue
Overview of business rescue in South Africa - the context, process, and stakeholders

Business rescue in South Africa

Judicial management replaced by modern new business rescue legislation

Acknowledgements

Presently, there is a world-wide trend towards business rescue instead of liquidation.  This web page pays tribute to Professor David Burdette for his vision and pioneering work in realising this dream in South Africa.

His and other important contributions by Tshepo Mongalo (now Professor), Zodwa Ntuli, MacDonald Netshitenzhe and Desmond Ramabulana (all of the dti at the time), Gerald Meyerman, Gordon Johnson and Phil Knight (all of of the USAID Financial Sector Program at the time), Professor Anneli Loubser, and others, are discussed in History of Chapter 6 development.

Professor Tshepo Mongalo

Professor Tshepo Mongalo

SA in 1926 an early mover with business rescue albeit with a poor product

Ironically, South Africa as early as 1926 already was the first country outside the USA to have implemented business rescue legislation.  In the previous Companies Act it appeared 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 (Judicial Management as a Business Rescue Procedure in South African Corporate Law (Loubser, 2004)). 

See References below for academic contributions on business rescue by the present leading academic on the topic, Professor Anneli Loubser.

South Africa therefore was in a position of having to play catch-up.

A new business rescue dispensation holding much promise

The replacement of judicial management by new business rescue legislation and regulations heralds a new future for financially distressed but economically viable companies in South Africa where turnaround during informal workout has failed or is not deemed a viable option. 

It places South Africa on par with modern business rescue legislation in overseas jurisdictions, bar some oversights such as not explicitly recognising pre-packaged business rescue, and a softening of the originally followed USA Chapter 11 principles.

See Critical assessment of Chapter 6 business rescue for more information.

Implementation of the Chapter 6 business rescue provisions of the new Companies Act

The process for accreditation of professions is still under way.  An accreditation model will be developed and round table discussions with reference groups will take place in July.

The licensing of individuals to act as business rescue practitioners has started, and as an interim measure conditional licenses are granted.

In the interim all businesses that make a decision to start rescue proceedings can file notices prescribed in the Act with the CIPC and identify a prospective practitioner that will be considered to be licensed on an urgent basis.

Such interim licences will be granted for a limited period and will relate only to that specific business.  Several licences granted on this basis have been issued.

It was also further decided that an extension and condonation of time limits in regard to appointment of business rescue practitioners will be granted, as prescribed under Regulation 166 (1) of the regulations published on 26 April 2011, in cases where suitable rescue practitioners cannot be appointed in time.

Accreditation of professions and licensing of business rescue practitioners are addressed in detail at Status of accreditation of professions and licensing of business rescue practitioners.

The interim licensing process of business rescue practitioners are discussed in detail at Official CIPC business rescue practitioner registration application process for interim licensed business rescue practitioners.

Contents of this section on business rescue in South Africa

Source of information

This section on business rescue in South Africa will be informed by Jan van der Walt's:

  • Doctoral research of business rescue.
  • Experience since 2004 of interacting with government on the drafting of the Chapter 6 business rescue provisions in the new Companies legislation and regulations.
  • Experience as a member of the King III Business Rescue subcommittee.
  • Experience as a Senior Business Rescue Practitioner.

This section on business rescue in South Africa has 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, when allowed, is the cause of of its high failure rate overseas.

  • Second, Chapter 6 legislation and regulations are summarised in terms of the process, plan, business rescue practitioner, and implications for various stakeholders. 
  • Third, the characteristics of Chapter 6 are summarised.  
  • Fourth, a critical assessment of Chapter 6 is provided in terms of comparison with overseas practice, focusing on the more controversial issues. 
  • Last, the history of Chapter 6 development is explored, which sheds some light on aspects addressed in the critical assessment. 

These different parts can be accessed in the menu in the left-hand column.

Readings on Chapter 6 business rescue

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.

Videos

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

Current issues

For excellent summaries of current issues around Chapter 6 business rescue, see "A Roundtable Discussion on the New Companies Act and Its Business Rescue Provisions" (2010), and "Insolvency Systems in South Africa - Strengthening the Regulatory Framework" (Johnson & Meyerman, 2010).  The latter is summarised in "An Overview of the FSP Report Insolvency Systems in South Africa: Strengthening the Regulatory Framework (the Report)" (2011). 

The latest status discussion is "Impacting Policy: USAID FSP and the Revised Draft Regulations Under the Companies Act" (2011) and "Bring Out the Rescue Remedy" (Steyn, 2011).

SAICA maintains a section on business rescue at "Companies Act 71, of 2008". So does the Companies and Intellectual Properties Commission at "Business Rescue".

Critical analysis

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).  Her concerns and questions are available as academic articles "The Business Rescue Proceedings in the Companies Act of 2008: Concerns and Questions (Part 1)" (Loubser, 2010b) and "The Business Rescue Proceedings in the Companies Act of 2008: Concerns and Questions (Part 2)" (Loubser, 2010c).

Bradstreet (2011) in "The New Business Rescue: Will Creditors Sink or Swim?" provides the latest academic assessment of how the new business rescue legislation will impact on creditors.

Another useful critical analysis is "A Critical Analysis of the Business Rescue Regime in the Companies Act 71 of 2008: Business Rescue: Part III" (Rushworth, 2010).  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. 

Anderson (2008) in "Viewing the Proposed South African Business Rescue Provisions from an Australian Perspective" provides an interesting comparison with Australia's new business rescue legislation, but this work should be read with care since the Companies Bill rather than the Companies Act is assessed, with the latter different in many aspects assessed by Anderson.

Similarly, Bowles & Bruyns (2009) in "A Critical Analysis and Assessment of Proposed Provisions of Business Rescue as Contained in the Companies Bill of 2008" offer an interesting overview of the main issues, albeit with reference to the original bill.  Also see "An Analysis of the Role and Effect of the Rescue Procedure of the New Companies Act 71 of 2008 as Alternative to Liquidation of Companies" (Van Rensburg, 2010), and "Business Rescues in New Act May Have Undesirable Results" (Swanepoel, 2009).

Moore (2006) in "Does Rescuing Insolvent Companies Do More Harm Than Good?" provides a contrarian view on the merits of business rescue.

Overviews

Other insightful overviews are "Chapter 6 of the South African Companies Act 71 of 2008 Reviewed" by Braatvedt (2010) (a former chair of the Turnaround Management Association - Southern Africa), "Prepare for Different Ball Game with New Corporate Legislation" (Burger-van der Walt, 2010), "You May Be Right - but You May Be Wrong, Too!" (Fraser' 2010), "A Practical Guide to the Implications of the New Companies Act – an Introduction" (Katz, 2010), "Business Rescue Matters". (2009), "A Case for Business Rescue" (Lamprechts, 2010), "Corporate Rescue - Philosophy Behind Restructuring Legislation" (Meyerman, 2010), "Business Rescue" (2011), and "A Turnaround Practitioner's View on Business Rescue Legislation" (Van der Walt, 2011).

 “Companies Act 71 of 2008", 2010) is a hard-hitting, somewhat cynical but humorous critical review on Chapter 6 business rescue.

Moosa (2009) assesses the new Companies Act from a legal point of view in "Business Rescue: The Challenges".

"Errant Directors Face Delinquency Orders" (Temkin, 2011) focuses on how directors are affected.

Turnaround Management and Corporate Renewal

Professor Neil Harvey's book "Turnaround Management & Corporate Renewal - a South African Perspective" (Harvey, 2011) contains several chapters dealing with business rescue: "Legislative Framework for the Facilitation of Turnarounds" (Burdette, 2011), "Legal Aspects of a Turnaround" (Gewer, 2011), "The New Business Rescue Procedure" (Levenstein, 2011), "A Banker's perspective" (Taggart, 2011), "Turnaround Situations" (Van der Walt, 2011), and "A Turnaround Practitioner's View on Business Rescue Legislation" (Van der Walt, 2011).

Practical guides

The most useful practical guides are “Guidance on Business Rescue”(2009) from the Institute of Directors, "Chapter 6 of the Companies Act 71 of 2008 - Business Rescue and Compromise with Creditors" (Levenstein & Mountjoy, 2009), "The New Companies Act: Business Rescue Now an Option" Levenstein (2010), and "Business Rescue: A Guideline for the South African Banking Sector" (Levenstein, 2011).

Further useful media articles and company web sites, as well as official acts and regulations are listed in the Reference section below.

Other more specific references appear in the other web pages on this web site.

References and readings

Academic articles

Anderson, C. (2008). Viewing the Proposed South African Business Rescue Provisions from an Australian Perspective. Potchefstroom Electronic Law Journal, 1, pp. 1-31.

Bradstreet, R. (2011). The New Business Rescue: Will Creditors Sink or Swim? South African Law Journal, 128(2), 352-380. (Accessible through Sabinet).

Burdette, D. (2011). Legislative Framework for the Facilitation of Turnarounds. Turnaround Management & Corporate Renewal - a South African Perspective (pp. 130-140). Johannesburg: Wits University Press.

Harvey, N. (2011). Turnaround Management & Corporate Renewal - a South African Perspective. Johannesburg: Wits University Press.

Loubser, A. (2004). Judicial Management as a Business Rescue Procedure in South African Corporate Law. SA Mercantile Law Journal, 16(2), pp. 137-163.  (Accessible through Sabinet).

Loubser, A. (2010, February). Some Comparative Aspects of Corporate Rescue in South African Company Law (Doctoral dissertation). University of South Africa.

Gewer, D. (2011). Legal Aspects of a Turnaround. Turnaround Management & Corporate Renewal - a South African Perspective (pp. 71-76). Johannesburg: Wits University Press.

Levenstein, E. (2011). The New Business Rescue Procedure. Turnaround Management & Corporate Renewal - a South African Perspective (pp. 77-85). Johannesburg: Wits University Press.

Loubser, A. (2010b). The Business Rescue Proceedings in the Companies Act of 2008: Concerns and Questions (Part 1). Tydskrif vir die Suid-Afrikaanse Reg, (3), 501-514. (Accessible through Sabinet).

Loubser, A. (2110c). The Business Rescue Proceedings in the Companies Act of 2008: Concerns and Questions (Part 2). Tydskrif vir die Suid-Afrikaanse Reg, (4), p. 589-701. (Accessible through Sabinet).

Rushworth, J. (2010). A Critical Analysis of the Business Rescue Regime in the Companies Act 71 of 2008: Business Rescue: Part III. Acta Juridica, (Modern company law for a competitive South African economy), pp.375-408.  (Accessible through Sabinet).

Taggart, R. (2011). A Banker's perspective. Turnaround Management & Corporate Renewal - a South African Perspective (pp. 208-218). Johannesburg: Wits University Press.

Van der Walt, J. L. (2011a). Turnaround Situations. Turnaround Management & Corporate Renewal - a South African Perspective (pp. 32-47). Johannesburg: Wits University Press.

Van der Walt, J. L. (2011b). A Turnaround Practitioner's View on Business Rescue Legislation. Turnaround Management & Corporate Renewal - a South African Perspective (pp. 141-170). Johannesburg: Wits University Press.

Professional publications

An Overview of the FSP Report Insolvency Systems in South Africa: Strengthening the Regulatory Framework (the Report). (2011, February). The Contemporary Gazette, 6(3).

A Roundtable Discussion on the New Companies Act and Its Business Rescue Provisions. (2010, July). SBP.

Business Rescue Matters. (2009). Cliffe Dekker Hofmeyr Attorneys.

Johnson, G., & Meyerman (2010, December). Insolvency Systems in South Africa - Strengthening the Regulatory Framework. USAID/Southern Africa, Financial Sector Program.

King, M. (2009, September 1). Guidance on Business Rescue. Institute of Directors.

Lamprecht, C. (2010, June). A Case for Business Rescue. Accountancy SA.

Levenstein, E., & Mountjoy, T. (2009, November). Chapter 6 of the Companies Act 71 of 2008 - Business Rescue and Compromise with Creditors. Werksmans Attorneys.

Levenstein, E. (2011, March). Business Rescue: A Guideline for the South African Banking Sector. Werksmans Attorneys.

Meyerman, G. (2010, October 27). Corporate Restructure - Philosophy Behind Restructuring Legislation. Presented at the AIPSA 2nd Annual Conference on Insolvency & Business Rescue Legislation & Practice, Cape Town, South Africa.

Moosa, R. (2009, March). Business Rescue: The Challenges. Deneys Reitz Attorneys.

Professional web sites

Bowles, R., & Bruyns, W. (2009, April). A Critical Analysis and Assessment of Proposed Provisions of Business Rescue as Contained in the Companies Bill of 2008. Couzyn Hertzog & Horak Attorneys.

Burger-van der Walt, M. (2010, March 17). Prepare for Different Ball Game with New Corporate Legislation. Webber Wentzel Attorneys.

Braatvedt, K. (2010, August 18). Chapter 6 of the South African Companies Act 71 of 2008 Reviewed. HG.org.

Business Rescue. (2011). Companies and Intellectual Property Commission.

Business Rescue. (2010). Danie Potgieter Attorneys.

Chapter 6 of the Companies Act 71 of 2008 - Business Rescue and Compromise with Creditors. (2009) Werksmans.

Companies Act 71, of 2008. (2010, August 3). SAICA.

Companies Act 71 of 2008. (2010, March 17). Walkers Attorneys Incorporated.

CRS Business Rescue. (2011). Corporate Renewal Solutions.

Impacting Policy: USAID FSP and the Revised Draft Regulations Under the Companies Act. (2010, December). USAID/Southern Africa, Financial Sector Program.

Moore, G. (2006, May). Does Rescuing Insolvent Companies Do More Harm Than Good? The Free Market Foundation.

Moosa, R. (2009, October 6). Business Rescue: The Challenges. Deneys Reitz Attorneys.

New Companies Act [Part VI]: Business Rescue. (2010). Igwetha Training Academy.

Swanepoel, E. (2009, November 11). Business Rescues in New Act May Have Undesirable Results. Webber Wentzel Attorneys.

Van der Walt, J. (2011). Business rescue implementation and operational status in South Africa. CRS Business Rescue.

Van der Walt, J. (2011). The business rescue practitioner. CRS Business Rescue.

Van der Walt, J. (2011). Registration as a business rescue practitioner. CRS Business Rescue.

Van der Walt, J. (2011). Status of accreditation of professions and licensing of business rescue practitioners. CRS Business Rescue.

Van der Walt, J. (2011). The official CIPC business rescue practitioner registration application process for interim licensed business rescue practitioners. CRS Business Rescue.

Van Rensburg, H. (2010, April 3). An Analysis of the Role and Effect of the Rescue Procedure of the New Companies Act 71 of 2008 as Alternative to Liquidation of Companies. Legal Issues.

Media articles

Fraser, G. (2010, August 19). You May Be Right - but You May Be Wrong, Too! Legalbrief.

Katz, M. (2010, January). A Practical Guide to the Implications of the New Companies Act – an Introduction. De Rebus.

Levenstein, E. (2010a, May 28). Business Rescue Due. Engineering News.

Levenstein, E. (2010b, June). The New Companies Act: Business Rescue Now an Option. Management Today, 28(5), pp. 6-8.   (Accessible through Sabinet).

Smit, P. (2010, September 10). Formalisation of Business Rescue Rules Could Help Lower SA’s Liquidation Rate. Engineering News.

Steyn, L. (2011, May 20). Bring Out the Rescue Remedy. Mail & Guardian Online.

Temkin, S. (2011, May 30). Errant Directors Face Delinquency Orders. BusinessDay.

Weavind, T. (2011, July 9). Creditors Aim to Cash in on New Business Rescue Provisions. Business LIVE.

Weavind, T. (2011, July 9). Turnarounds: Does Business Rescue Have the Right Remedy. Times LIVE.

Video

Harris, A. (2010). Business Rescue. Bowman Gilfillan Attorneys.

Acts and Regulations

Business rescue provisions in Chapter 6 of the Companies Act No. 71 of 2008 pdf (323k).

Ondernemingreddingbepalings in Hoofstuk 6 van die Maatskappywet No. 71 of 2008 pdf (333k).

Business rescue provisions in Chapter 6 of the Companies Amendment Act No. 3 of 2011 pdf (279k).

Business rescue provisions in Chapter 6 of the Companies Amendment Act No. 3 of 2011 (English/Afrikaans version) pdf (792k).

Business rescue provisions in Chapter 6 of the unofficial LexisNexis Consolidated Companies Act pdf (105k).

Business rescue provisions in Chapter 6 of the Companies Regulations, 2011 pdf (62k).

Companies Act No. 71 of 2008 pdf (829k).

Maastskappywet No. 71 of 2008 pdf (545k).

Companies Amendment Act No. 3 of 2011 pdf (2 000k).

Companies Amendment Act No. 3 of 2011 (English/Afrikaans version) pdf (5 920k).

Unofficial LexisNexis Consolidated Companies Act pdf (945k).

Companies Regulations, 2011 pdf (951k).

King, M. (2009, September 1). King III Code of Governance for South Africa. Institute of Directors.

King, M. (2009, September 1). King III Report on Governance in South Africa. Institute of Directors.


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