Page 38 - Q&A

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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