The considerable task of overseeing the business rescue process and turning the financially distressed company around rests with the business rescue practitioner (the Practitioner). A Practitioner can be appointed in one of two ways. The board is responsible for nominating and appointing the Practitioner if the business rescue process is commenced by a resolution by the board. The court must appoint an interim Practitioner nominated by the affected person who applied to court, subject to ratification by the majority of the independent creditors if the business rescue process is commenced as a result of a court order.
The role of the Practitioner is a demanding one as he or she is expected to succeed in a task at which the board of directors of the company have failed. Section 138 of the Companies Bill 2008 (the Bill) sets out the eligibility criteria for Practitioners. Only a "person in good standing of a profession subject to regulation by a regulatory authority prescribed by the Minister" may be appointed as a Practitioner. Persons who are subject to an order of probation or who would be disqualified as acting as directors of the company or who have a relationship with the company that could jeopardise their independence, are not permitted to be appointed as Practitioners. The Minister has not yet given any indication as to which person or association it will appoint to regulate Practitioners.
During the business rescue process, the Practitioner has full management control of the company in substitution for its board and pre-existing management. The Practitioner is given the power to remove any person from office, who forms part of the pre-existing management of the company. This drastic provision may prove problematic as it appears contrary to the processes for dismissal set out in the Basic Conditions of Employment Act. The Practitioner may delegate any part of his or her functions to a person who was part of the board or pre-existing management of the company. Directors of the company are expected to co-operate with and assist the Practitioner and provide the Practitioner with all relevant information about the company. The Practitioner is responsible for developing a business rescue plan and for the implementation of such a plan.
The Practitioner must, as soon as possible, commence investigating the company's affairs. If the Practitioner finds that there is no prospect of rescuing the company the Practitioner must apply to court to place the company in liquidation. If the Practitioner finds that the company is no longer financially distressed, the Practitioner must take steps to terminate the rescue proceedings. There is some scepticism as to whether there will be any incentive for Practitioners to take steps to terminate rescue proceedings, since for as long as rescue proceedings continue, the Practitioners will be remunerated by the company.
Practitioners are entitled to charge an amount to the company for remuneration and expenses in accordance with a tariff to be prescribed by the Minister. There is also no indication of what the tariff will be or how the remuneration will be calculated. The Practitioner may also propose an arrangement with the company for further remuneration on a contingency basis, related to the adoption of the business rescue plan and the attainment of certain results in relation to the business rescue process. The contingency agreement must be approved by the majority of creditor's voting interests.
A potentially lucrative opportunity exists for highly skilled individuals and organisations with the necessary experience in turning around businesses to fill the role of Practitioners.
Tessa Brewis, Senior Associate
Corporate and Commercial