Article by listed Attorney: Nanika Prinsloo
Read Also: Business Rescue: How Does it Work?
Read Also: Business Rescue: Cashflow during the Process
Once the Company has adopted a Resolution or a Court order was given to put the Company under Business Rescue, a Business Rescue Practitioner must be appointed. Once he/she was appointed and accepted the appointment in writing, the Business Rescue process must be registered with CIPC (Commercial and Intellectual Property Commission). CIPC will issue a license to the Business Rescue Practitioner and after some formalities, the Business Rescue Procedure will begin.
You can read our other articles on the Business Rescue process by following the links at the beginning of this article, which will give more information.
Section 136 of the Companies Act, Act 71 of 2008, deals with the effect of Business Rescue on employees and contracts.
This Section states that, despite any provision of an agreement to the contrary—
(a) during a Company’s Business Rescue proceedings, employees of the Company, immediately before the beginning of those proceedings, continue to be so employed on the same terms and conditions, except to the extent that—
(i) changes occur in the ordinary course of attrition; or
(ii) the employees and the Company, in accordance with applicable labour laws, agree different terms and conditions; and
(iii) any retrenchment of any such employees contemplated in the Company’s Business Rescue plan is subject to section 189 and 189A of the Labour Relations Act, 1995 (Act No. 66 of 1995), and other applicable employment related legislation.
During Business Rescue proceedings, the Practitioner may cancel or suspend entirely, partially or conditionally any provision of an agreement to which the Company is a party at the commencement of the Business Rescue period, but he cannot do so with agreements of employment.
If an agreement has been suspended or cancelled, or any provision of an agreement was suspended or cancelled under the Business Rescue process, and this cancellation or suspension caused damages to a person or entity who was a party to such an agreement, may put in a claim against the Company for damages.
If liquidation proceedings have been converted into Business Rescue proceedings, the liquidator will a creditor of the Company and he/she may claim from the Company for any remuneration due for work performed, or compensation for expenses incurred, before the Business Rescue proceedings began.
In terms of Section 137 of the Companies Act, Act 71 of 2008, an alteration in the classification or status of any issued securities of a Company, other than by way of a transfer of securities in the ordinary course of business, is invalid except to the extent—(a) that a Court otherwise directs; or
(b) contemplated in an approved Business Rescue plan.
During a Company’s Business Rescue proceedings, each director of the Company:-
(a) must continue to exercise the functions of director, subject to the authority of the Business Rescue Practitioner;
(b) has a duty to the Company to exercise any management function within the Company in accordance with the express instructions or direction of the Business Rescue Practitioner, to the extent that it is reasonable to do so;
(c) remains bound by the requirements of section 75 concerning personal financial interests of the director or a related person;(Section 75 of the Companies Act, Act 71 of 2008 deals inter alia with personal financial interests of directors and will not be elaborated on here as it is not relevant to our topic);
(d) to the extent that the director acts in accordance with paragraphs(b) and (c), is relieved from the duties of a director as set out in the Companies Act.
Each director of the Company must attend to the requests of the Business Rescue Practitioner at all times during the Business Rescue process. They must also provide the Practitioner with any information about the Company’s affairs as may reasonably be required.
If, during a Company’s Business Rescue proceedings, the Board, or one or more directors of the Company, purports to take any action on behalf of the Company that requires the approval of the Practitioner, that action is void unless approved by the Practitioner.
The Business Rescue Practitioner may, at any time during the Business Rescue proceedings, apply to a Court for an order to remove a director from office on the grounds that the director has
(a) failed to comply with a requirement of the Business Rescue process; or
(b) by act or omission (by doing something or not doing something) , has impeded, or is impeding (hinders):
(i) the Business Rescue Practitioner in the performance of his/her powers and functions;
(ii) the management of the Company by the Practitioner; or
(iii) the development or implementation of a Business Rescue plan.
This is the effect on the role players discussed in this article.
