This article is the second in a series that serve to offer insight into what happens once a company has entered business rescue.

Compulsory meetings with staff and creditors

Once a meeting has been held with the relevant creditors, the appointed Business Rescue Practitioner (BRP) has 90 days to prepare and publish the rescue plan. The staff meeting is held on the same day and is purely a formality and must be done.

What went wrong? What can be done? And what about cash flow?

Rent, salaries current PAYE, VAT and a number of other expenses must still be paid. The attorneys and BRP must also be paid. They do not work on credit.

All pre-rescue creditor balances are frozen. None of these can be settled.

How long will the cash flow carry the company? Remember there is no credit and all accounts along with motor and credit cards are frozen. How can the problems be solved? Is it necessary to cut costs, beef up sales? How can extra funding, called “Post Commencement Finance” be raised?

Raising Post Commencement Finance

The lenders become preferential creditors, subordinate only to the business rescue practitioner. Unfortunately, Post Commencement Finance lenders (PFC), whilst being creditors, do not have a vote as creditors. PCF is almost impossible to raise on account of the obvious risk posed by the would be lender being in business rescue. The only exception is where an asset, say the land can be borrowed against.

Generating a successful business rescue plan

It has taken years for the company to get into distress. The problems causing the distress need to be solved and the solution will need to be funded. This is a big ask. Not obvious and definitely not easy. How do we create a plan ? How do we fund the plan? Once a plan has been formulated it is necessary to have it documented according to the terms of the ACT. This is not an impossible task but neither is it an easy one.

The attorneys must be involved to ensure legal compliance

Everything hinges on the next creditors meeting, at which, either the plan is accepted or a further extension is requested. If the extension is declined, the company has reached the end of the road and they will be forced to go into liquidation. If the extension is granted, there is more time to complete the rescue plan.

Once the rescue plan is accepted by the creditors, it is the duty of the BRP to execute it. They are required to continue with this until they can prove substantial implementation or until they believe the rescue is no longer achievable.  At all times the attorneys must be part of the process.

Once all the pre-rescue creditors have been settled or normalised in terms of the plan and the creditor’s moratorium is achieved, the BRP should declare substantial implementation and terminate the rescue. 

This series of articles is written to provide information that many companies may not have about the process of business rescue. Click here to read the first part of this series. To receive a free assessment on all the options available to your company, contact Business Alive.