15 June 2010 by

The Business Rescue Plan

The business rescue practitioner must prepare a business rescue plan (the plan) after consulting with all affected persons and the management of the company. The plan must contain all information reasonably required to assist affected persons in deciding whether to accept the plan, and must be divided into three parts, namely:

Part A: Background, which must include at least a:

  • list of the material assets of the company, and an indication as to which assets were held are security by creditors;
  • list of creditors of the company and an indication as to which creditors qualify as secured, preferent and concurrent in terms of insolvency law;
  • probable dividend that would be received by creditors if the company were to be placed in liquidation;
  • list of the holders of the company's securities; and
  • statement whether the plan includes a proposal made informally by a creditor of the company.

Part B: Proposals, which must include at least the:

  • nature and duration of any moratorium for which the plan makes provision;
  • extent to which the company is to be released from the payment of its debts, and the extent to which any debt is proposed to be converted to equity in the company;
  • ongoing role of the company, and the treatment of any agreements;
  • property of the company that is to be available to pay its creditors' claims;
  • order of preference in which the proceeds of property will be applied to pay creditors if the plan is adopted;
  • benefits of adopting the plan as opposed to those that would be received if the company were to be liquidated; and
  • effect that the plan will have on the holders of the company's issued securities.

Part C-Assumptions and conditions, which must include at least:

  • a statement of the conditions that must be satisfied for the plan to come into operation and be implemented;
  • how the plan will affect employees;
  • the circumstances in which the plan will end; and
  • a projected balance sheet for the company and statement of income and expenses for the ensuing three years prepared on the assumption that the proposed plan is adopted.

The business rescue practitioner must convene a meeting where creditors and any other interested persons can consider the plan. The proposed plan will have been approved on a preliminary basis if it was supported by the holders of more than 75% of the creditors' voting interests that were voted and the votes in support of the proposed plan included at least 50% of the independent creditors' voting interests that were voted.

If a proposed plan alters the rights of any class of holders of the company's securities the business rescue practitioner must immediately hold a meeting of holders of the class, or classes of securities whose rights would be altered by the plan, and call for a vote by them to approve its adoption. If in such a vote a majority of the voting rights that were exercised support adoption of the plan, it will have been finally adopted.

A plan that has been adopted is binding on the company, each of the creditors of the company and every shareholder of the company. The company must take all necessary steps to satisfy any conditions on which the plan is contingent and implement the plan.

To the extent necessary, the business rescue practitioner may, in accordance with the plan, determine the consideration for, and issue, any authorised securities of the company. If the plan was approved by the shareholders of the company, the business rescue practitioner may amend the company's Memorandum of Incorporation to authorise, and determine the preferences, rights, limitations and other terms of, any securities that are not otherwise authorised, but are contemplated to be issued in terms the pan. This gives the business rescue practitioner much wider powers than those of a judicial manager in terms of the Companies Act of 1973, section 433 of which prescribes that a judicial manager shall be empowered to assume the management of the company subject to the provisions of the memorandum and articles of the company concerned in so far as they are not inconsistent with any direction contained in the relevant judicial management order.

When the plan has been substantially implemented, the business rescue practitioner must file a notice of substantial implementation of the plan.

Charles Ancer, Director and Yaniv Kleitman, Associate
Corporate and Commercial

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