CRS Business Rescue

In-depth analysis of the business rescue provisions contained in Chapter 6 of the Companies Act No. 71 of 2008

Section 138: Qualifications of practitioners

(1) A person may be appointed as the practitioner of a company only if the person—

(a) is a member in good standing of a profession subject to regulation by a regulatory authority prescribed by the Minister in terms of subsection (2);

(b) is not subject to an order of probation in terms of section 162(7);

Section 162(7)
(7) A court may make an order placing a person under probation, if—

(a) while serving as a director, the person—

(i) was present at a meeting and failed to vote against a resolution despite the inability of the company to satisfy the solvency and liquidity test, contrary to this Act;

(ii) otherwise acted in a manner materially inconsistent with the duties of a director; or

(iii) acted in, or supported a decision of the company to act in, a manner contemplated in section 163(1); or

(b) within any period of 10 years after the effective date—

(i) the person has been a director of more than one company, or a managing member of more than one close corporation, irrespective whether concurrently, sequentially or at unrelated times; and

(ii) during the time that the person was a director of each such company or managing member of each such close corporation, two or more of those companies or close corporations each failed to fully pay all of its creditors or meet all of its obligations, except in terms of—

(aa) a business rescue plan resulting from a resolution of the board in terms of section 129; or

(bb) a compromise with creditors in terms of section 155.

(c) would not be disqualified from acting as a director of the company in terms of section 69(8);

Section 69(8)
(8) A person is disqualified to be a director of a company if—

(a) a court has prohibited that person to be a director, or declared the person to be delinquent in terms of section 162, or in terms of section 47 of the Close Corporations Act, 1984 (Act No. 69 of 1984); or

(b) subject to subsections (9) to (12), the person—

(i) is an unrehabilitated insolvent;

(ii) is prohibited in terms of any public regulation to be a director of the company;

(iii) has been removed from an office of trust, on the grounds of misconduct involving dishonesty; or

(iv) has been convicted, in the Republic or elsewhere, and imprisoned without the option of a fine, or fined more than the prescribed amount, for theft, fraud, forgery, perjury or an offence—

(aa) involving fraud, misrepresentation or dishonesty;

(bb) in connection with the promotion, formation or management of a company, or in connection with any act contemplated in subsection (2) or (5); or

(cc) under this Act, the Insolvency Act, 1936 (Act No. 24 of 1936), the Close Corporations Act, 1984, the Competition Act, the Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001), the Securities Services Act, 2004 (Act No. 36 of 2004), or Chapter 2 of the Prevention and Combating of Corruption Activities Act, 2004 (Act No. 12 of 2004).

(d) does not have any other relationship with the company such as would lead a reasonable and informed third party to conclude that the integrity, impartiality or objectivity of that person is compromised by that relationship; and

(e) is not related to a person who has a relationship contemplated in paragraph (d).

(2) The Minister may designate one person or association within the Republic to regulate the practice of persons as practitioners in terms of this Act, if that person or association—

(a) is committed to achieving the purposes of this Chapter;

(b) functions predominantly to promote sound principles and good practice of business turnaround or rescue; and

(c) has sufficient human, financial and operational resources, and adequate administrative procedures and safeguards, to enable it to function efficiently and to effectively carry out its functions in terms of this Chapter, or presents to the Minister a credible plan to acquire or develop those resources.

(3) The Minister may—

(a) impose reasonable conditions upon a person or association designated by the Minister in terms of subsection (2) with respect to the carrying out of its functions and powers in terms of this Chapter; and

(b) make regulations prescribing—

(i) minimum qualifications for admission of a person to the practice of a business rescue practitioner; and

(ii) procedures to be followed by a person or association designated by the Minister in terms of subsection (2) in carrying out its functions and powers in terms of this Chapter.

83. Substitution for section 138 of Act 71 of 2008

The principal Act is hereby amended by the substitution, for section 138, of the following:

“Qualifications of practitioners

“138. (1) A person may be appointed as the business rescue practitioner of a company only if the person––

(a) is a member in good standing of––

(i) a legal, accounting or business management profession that is subject to regulation by a regulatory authority; or

(ii) has been [prescribed] licensed as such by the [Minister] Commission in terms of subsection (2);

(b) is not subject to an order of probation in terms of section 162 (7);

(c) would not be disqualified from acting as a director of the company in terms of section69 (8);

(d) does not have any other relationship with the company such as would lead a reasonable and informed third party to conclude that the integrity, impartiality or objectivity of that person is compromised by that relationship; and

(e) is not related to a person who has a relationship contemplated in paragraph (d).

“(2) For the purposes of subsection (1)(a)(ii), [The Minister] the Commission may [designate one] license any qualified person [or association within the Republic to regulate the practice of persons] to practice as a practitioner[s] in terms of this [Act] Chapter, and may suspend or withdraw any such licence in the prescribed manner. [, if that person or association––]––

[(a) is committed to achieving the purposes of this Chapter;

(b) functions predominantly to promote sound principles and good practice of business turnaround or rescue; and]

(c) has sufficient human, financial and operational resources, and adequate administrative procedures and safeguards, to enable it to function efficiently and to effectively carry out its functions in terms of this Chapter, or presents to the Minister a credible plan to acquire or develop those resources.]

“(3) The Minister may make regulations prescribing––

(a) [impose reasonable conditions upon a person or association designated by the Minister in terms of subsection (2), with respect to the carrying out of its functions and powers in terms of this Chapter; and] standards and procedures to be followed by the Commission in carrying out its licencing functions and powers in terms of this section; and

(b) [make regulations prescribing] minimum qualifications for a person to practice as a business rescue practitioner, including different minimum qualifications for different categories of companies. [––

[(i) minimum qualifications for admission of a person to the practice of a business rescue practitioner; and

[(ii) procedures to be followed by a person or association designated by the Minister in terms of subsection (2) in carrying out its functions and powers in terms of this Chapter.]”

Comment on amendment

First, the originally proposed regulator of business rescue practitioners is now replaced by the Companies and Intellectual Property Commission.

Second, a business rescue practitioner must be either a member in good standing of a legal, accounting or business management profession that is subject to regulation by a regulatory authority, or has been licensed as such by the Commission. This means that apart from accountants and attorneys, turnaround professionals with other degrees may also practise as business rescue practitioners - an amendment that has been vigorously lobbied for by the Turnaround Management Association - Southern Africa and its submissions and discussions with the authors of the legislation. The exact admission criteria are expected to be outlined in the next draft company regulations.