The struggling South African economy may lead to a higher number of companies falling into financial distress and having to apply for business rescue, a daunting outlook given the fact that in South Africa it can take up to three months before the matter comes before a court.
Calls for specialist courts with the necessary knowledge and experience to deal with the matters within the prescribed timeframe have increased in recent times.
The concept of business rescue was introduced through the Companies Act in 2011. The process requires that a business rescue plan is implemented within 90 days from the time the company has filed its notice to commence with business rescue.
Faith Ngwenya, technical and standards executive at the South African Institute of Professional Accountants (SAIPA), says this is for all practical purposes impossible to achieve given the current delays.
“The urgency to have specialist courts that can deal with the matters efficiently and quickly has never been so great,” she adds.
The main aim with the process is to reduce the number of companies which goes into final liquidation. Business rescue can be initiated by an application to court when the business is financially distressed.
However, in many instances the application is only heard three months after the notice was filed. Business rescue cases are not prioritised by the courts.
Ngwenya says statistics provided by the Companies and Intellectual Property Commission (CIPC) demonstrate that in 78% of the cases it took more than six months for the “substantial implementation” of proceedings.
She says that, during a business rescue process, the business is protected from any action that can be taken by the creditors and the company is allowed to operate under the supervision of a business rescue practitioner. However, lengthy delays in the process increase the risk of additional liabilities for the company and the potential of greater financial losses for creditors.
According to CIPC statistics the industries with the greatest number of business rescue proceedings include retail (vehicle repairs), information and communication, and construction.
Ngwenya says courts needs specialist skills to deal with the complexities of the Companies Act and the business rescue process.
“Business rescue is fairly new in South Africa, and although one can argue that a judge or a magistrate will use his professional judgement to take the correct decision, one has to acknowledge that these are not cases they deal with on a daily basis.”
The Department of Trade and Industry is the custodian of the Companies Act and CIPC is the implementer of the act.
“There needs to be an agreement between the Department of Trade and Industry and the Department of Justice that this (the establishment of specialist courts) need the priority it deserves.”
CIPC has accredited SAIPA to regulate its members that are eligible to be business rescue practitioners in October last year.