Why Is Business Rescue Needed?
South Africa’s unemployment rate is among the highest in the world, with over 33% of people out of work. When a business closes its doors, it can mean dozens or even hundreds of people lose their jobs overnight. Families lose their main source of income, and suppliers may not get paid. This can create a ripple effect, putting even more businesses and jobs at risk.
Before business rescue was introduced, companies that couldn’t pay their debts usually had to liquidate—sell everything off and shut down for good. This was a lose-lose situation for everyone. Business rescue offers a better way. Instead of closing, companies can try to fix their problems and come back stronger.
What Exactly Is Business Rescue?
Think of business rescue as a lifeline for companies in trouble. Instead of closing shop and calling it quits, a business can enter this process to reorganise, fix its problems, and hopefully get back on track. This idea was introduced by the Companies Act of 2008, which sets out clear rules for how business rescue should work.
It is a legal process that helps financially distressed companies reorganise and recover, rather than shutting down. It’s like giving a business a second chance. The main goals are to:
- Save the company if possible
- Protect jobs
- Make sure creditors (the people and businesses owed money) get a fair deal
How Does Business Rescue Work?
A company can start business rescue if it looks like it won’t be able to pay its debts in the next six months. This can happen in a few ways:
- Voluntary Business Rescue: The company’s directors (the people in charge) realise there’s trouble ahead and file a resolution to start business rescue.
- Court-Ordered Business Rescue: Creditors, shareholders, or employees can apply to the court to put the company into business rescue if they believe it’s in everyone’s best interest
Once business rescue starts, a special expert called a business rescue practitioner steps in. You can think of this person as a doctor for sick companies—they take control and try to nurse the business back to health.
Step-by-Step: How Does Business Rescue Work?
Let’s break down the business rescue process into simple steps:
1. Decision to Enter Business Rescue
- The company’s directors or a court decide that business rescue is necessary.
- A formal notice is filed with the Companies and Intellectual Property Commission (CIPC), and all affected parties are informed.
2. Appointment of a Business Rescue Practitioner
An independent expert, called a business rescue practitioner, is appointed. This person is like a doctor for the business—they take over management and try to turn things around.
3. Temporary Protection (“Moratorium”)
As soon as business rescue starts, the company gets temporary legal protection. Creditors can’t take legal action or demand payment while the process is underway. This gives the company some breathing room to work on a plan.
4. Investigation and Assessment
- The practitioner investigates the company’s finances, operations, and reasons for distress.
- Within 10 business days, the practitioner must meet with creditors, employees, and other stakeholders to explain the situation and discuss the way forward.
5. Drafting the Business Rescue Plan
- Within 25 business days of being appointed, the practitioner must publish a detailed business rescue plan or request an extension to publish.
- The plan explains:
- How the company got into trouble;
- What steps will be taken to fix things (restructuring, asset sales, new funding, etc);
- How creditors, employees, and shareholders will be affected; and
- The proposal and timeline for recovery.
6. Voting on the Plan
- A meeting is held where creditors and other affected parties vote on whether to accept the plan.
- For the plan to be approved, at least 75% of the creditors (by value of claims) and 50% of independent creditors must vote in favour.
7. Implementation
- If the plan is approved, the practitioner and company management put it into action.
- This might involve:
- Restructuring debts (negotiating new payment terms)
- Selling off non-essential assets
- Bringing in new investors or funding
- Changing how the business operates
8. Exit from Business Rescue
- Business rescue ends when:
- The plan is successfully carried out, and the company is stable again.
- The plan fails or is rejected, and the company goes into liquidation; and
- The court or practitioner decides to end the process.
Not every business rescue ends with a happy story. Sometimes, the problems are just too big to fix, or there isn’t enough support for the rescue plan. In those cases, the company may still have to close down. But even then, business rescue can help make the process fairer and more orderly for everyone involved.
Business rescue is South Africa’s way of giving companies a fighting chance. It’s about finding solutions, saving jobs, and making sure everyone gets treated as fairly as possible. In a country where jobs are scarce and every business matters, business rescue can make a real difference, not just for companies, but for ordinary people and families across the country.
Business rescue has assisted hundreds of companies in avoiding liquidation or closing their doors for good. Companies such as Edcon (Edgars and Jet Stores), one of South Africa’s biggest retail groups, entered business rescue in 2020. Thanks to the process, parts of the business were sold to new owners, saving thousands of jobs and keeping many stores open. Comair (Kulula and British Airways), Comair, the airline company behind Kulula and British Airways in South Africa, went into business rescue during the COVID-19 pandemic. The process allowed the company to restructure, secure new funding, and eventually return to the skies, saving jobs and giving travellers more options. Ster-Kinekor, South Africa’s largest cinema chain, Ster-Kinekor, entered business rescue in 2021 after lockdowns hit the movie industry hard. The process helped the company negotiate with landlords and creditors, keep cinemas open, and protect hundreds of jobs.
