In-depth analysis of the business rescue provisions contained in Chapter 6 of the Companies Act No. 71 of 2008 and the Companies Amendment Act No. 3 of 2011

Business rescue legislation

South Africa's new business rescue legislation is contained in Chapter 6 of the Companies Act No. 71 of 2008 and Chapter 6 of the Companies Amendment Act No. 3 of 2011.

Business rescue provisions in Chapter 6

Sections 128 to 155 of Chapter 6 of the Companies Act, 2008 and Companies Amendment Act, 2011 are listed in the menu on the left under the following headings:

Part A: Business rescue proceedings.
Part B: Practitioner’s functions and terms of appointment.
Part C: Rights of affected persons during business rescue proceedings.
Part D: Development and approval of business rescue plan.
Part E: Compromise with creditors.
Legal references cited by Chapter 6.

The purpose of this section is to:

List each section of the new business rescue legislation - first the Act and then the Amendment Act.

Provide information on the interpretation of each section - to be populated soon..
Provide an interactive forum, per section, for discussion and debate to enable a wider understanding of legal and practical aspects of business rescue.

Summary of Companies Amendment Act changes to Chapter 6 business rescue provisions

Most changes deals with language, grammatical errors and typos. Changes affecting the meaning of the Companies Act, 2008 are:

Section 133: General moratorium on legal proceedings against the company: The moratorium is not applicable in the case of proceedings by a regulatory authority in the execution of its duties after written notification to the business rescue practitioner. This raises the fear that there will be no moratorium on SARS collecting taxes owed to it.
Section 136: Effect of business rescue on employees and contracts: Banks were worried that the rescue practitioners would have the right to choose which agreements would be honoured, suspended and cancelled. Under the new provisions the practitioners will have to apply to court for the cancellation of agreements (“Bill puts minority shareholders at greater risk - claim,” 2010).

The practitioner can now only suspend contracts, and if he/she wishes to entirely, partially or conditionally cancel contracts, court permission is required. This change represents a dilution of the USA Chapter 11 principle originally contained in draft legislation.

Section 138: Qualifications of practitioners: First, the originally proposed regulator of business rescue practitioners is now replaced by the Commission. Second, a business rescue practitioner must be either a member in good standing of a legal, accounting or business management profession accredited by the Commission, or has been licensed as such by the Companies and Intellectual Property 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.

Note that the above is in line with the Afrikaans text and the Companies Regulations, but that the English text stipulates both belonging to a profession and being licensed as requirements.