Expectations of a business rescue plan: international directives for Chapter 6 implementation

Abstract

Preliminary analysis of business rescue plans suggested that a significant contrast exists between international reorganizational plans and those being published under the newly formed business rescue regime in South Africa. Since the South African regime has emerged from an international insolvency framework, an international benchmark was used to effectively assist in creating an evaluation tool. To better understand the expectations demanded of the plan, principles from comparable international regimes were identified. Data on regimes were obtained scrutinised and reported on; the expectations were extrapolated and aligned with Chapter 6 of the South African Companies Act, No. 71 of 2008, to determine whether the Act complied with a set of expectations based on an international perspective. The proposed framework shows the key principles that govern rescue plans worldwide. The framework could serve as a guideline for the evaluation of rescue plans and help practitioners to enhance what is seen as their key task, namely to compile the rescue plan. Comparison with the five key principles found by the research reveals particular shortcomings in Chapter 6 of the South African Companies Act of 2008. International regimes indicate that the rescue plan should adhere to a broader and more extensive set of expectations than those explicitly provided for by the Act.

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“…The debtor in possession submits report of his operations and the US Trustee monitors applications for compensation and reimbursement by professionals, plans and disclosure statements filed with the court, and creditors' committees. (see Bezuidenhout, 2012;Pretorius & Rosslyn-Smith, 2014;Conradie & Lamprecht, 2015). The Chapter 11 as adopted by the US basically empowers the debtor over the creditor (Bezuidenhout, 2012).…”

“…A case filed under this code is frequently referred to as a "reorganization" bankruptcy. The major objective of Chapter 11 of the US code of bankruptcy is defined by the US Supreme Court as (Pretorius & Rosslyn-Smith, 2014) In proceedings under the reorganization provisions of the Bankruptcy Code, a troubled enterprise may be restructured to enable it to operate successfully in the future. ... By permitting reorganization, Congress anticipated that the business would continue to provide jobs, to satisfy creditors' claims, and to produce a return for its owners ... Congress presumed that the assets of the debtor would be more valuable if used in a rehabilitated business than if 'sold for scrap'.…”

“…The objective of the company voluntary arrangement is to help revive a financially distress company through a voluntary reorganization / business rescue process before an insolvency charge is filed. It is however observed that this approach has not really been successful given the fact that there is no binding moratorium on the creditor (Pretorius & Rosslyn-Smith, 2014;Conradie & Lamprecht, 2015). The Insolvency Act (1986) has been criticized for the excessive importance given to securing the creditors.…”

“…Under the CCAA 1985, liquidation is not an alternative (Conradie & Lamprecht, 2015). Therefore the parties involved in the restructuring process must succumb to a restructuring plan (Pretorius & Rosslyn-Smith 2014). Ever since the promulgation of the two acts, there have been progressive efforts to continue to implement reforms that will update the process of insolvency management.…”

“…Business rescue, as defined by the South Africa Act of 2008, refers to proceedings which facilitate the rehabilitation of a company that is financially distressed by providing for the temporary supervision of the company and the management of its affairs, business and property, as well as a temporary moratorium on the rights of claimants against the company or in respect of property in its possession (Pretorius & Rosslyn-Smith, 2014). By so doing, a rescue plan is implemented to restructure the affairs, business, property, debt, other liabilities and equity of the company such that the possibility that the company continues as a going concern is maximized and in situations where that is unachievable, the outcome of the liquidation process yields more return than company's stakeholder creditors or shareholders than the immediate liquidation of the company (Conradie & Lamprecht, 2015).…”