Page 38 - Q&A
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Can a close corporation go under
            business rescue?


            May 2020
            “I have a construction business that is operated in a close corporation. As we
            have not had much work during the last few months, my business has come
            under severe financial pressure. I still believe in the business and know things
      Commercial  creditors. I’m considering business rescue but am unsure whether that option is
            will pick up again, but right now we just don’t have the cash flow to pay our
            available seeing as my business is a close corporation?”
            The dramatic effect of the past few months has taken a heavy toll on many
            businesses, with all businesses having to make plans for their continued
            operation  and  even  survival  in  the  short  term.  An  option  considered  in
            particular by many companies is engaging business rescue proceedings.

            The mechanism of business rescue is provided for in the Companies Act 71
            of 2008 (“Companies Act”) and offers formal options and processes to assist
            financially distressed companies in navigating their way out of such distress and
            to ensure the continuation of the business and the protection of its stakeholders.

            Practically, this involves the appointment of a business rescue practitioner who
            develops and supervises the implementation of an approved business rescue
            plan to regulate, amongst other things, the property, debt, affairs and liabilities of
            the business. Essentially the business is placed under temporary supervision and
            management for the duration of the proceedings and a temporary suspension
            is imposed on the rights of creditors and all existing and possible claims against
            the business or its property.

            With the introduction of the new Companies Act, close corporations, essentially
            became redundant. Consequently, no new close corporation may be
            incorporated as of the date of enactment of the new Companies Act. Existing
            close corporations may however still continue to exist and conduct business
            and continue to be regulated by the Close Corporation  Act, with certain
            provisions of the Companies Act finding application to close corporations. In
            particular it is provided for in the Close Corporations Act that business rescue
            proceedings as dealt with in the Companies  Act will apply to all existing
            close corporations.
            Therefore, the answer to your question is ‘yes’ you can initiate business rescue
            proceedings in respect of your close corporation and such proceedings would
            follow the provisions of the Companies Act. To assist you with business rescue
            proceedings, it is advisable that you consult your attorney or an experienced
            business rescue practitioner for guidance on the correct way to proceed.







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