Juan Engelbrecht

In South Africa, insolvency is generally regarded as a sign of failure and mostly embarrassment to the extent where business partners no longer want to supply goods or services. There is a significant stigma attached to it and insolvent debtors are suspected of being either reckless or dishonest, or both.
I believe that this view was a major contributing factor to the failure of judicial management in South Africa (Under our Old Companies Act of 1973): the decisions of the courts in judicial management applications displayed a mistrust of this procedure which was regarded as an infringement on the rights of creditors because it prevented them from exercising their right to liquidate a company to obtain payment of their claims.
Our new South African model (Companies Act 71 of 2008) defines ‘business rescue’ as proceedings to facilitate the rehabilitation of a company that is financially distressed (see below) by providing for:

* The temporary supervision and management of the company by a business rescue practitioner;
* A temporary moratorium on the rights of claimants against the company or property in its possession: and
* The development and implementation (if approved) by a plan to rescue the company by restructuring its affairs, business, property, debt, other liabilities and equity in a manner that maximizes the likelihood of the company continuing in existence on a solvent basis, or provides a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.

A company is ‘financially distressed’ when it appears to be reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable within the immediately ensuing six months, or it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months.

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