The Covid-19 pandemic has had a serious negative impact on the South African economy. Many businesses are struggling to remain profitable as a direct result of this. Trade restrictions coming as a result of Covid-19 have also led to our economic downgrade to junk status.

At the end of December 2019, the formal sector created employment for about 10 213 000 employees. Additionally, it contributed over R 690 Billion in profit to the South African economy in 2017. Knowing this, it’s crucial for businesses in financial distress to continue their existence. To achieve this, business rescue serves as an alternative to liquidation.

The Covid-19 pandemic has had a serious effect on economies worldwide. South Africa is no exception to this.

Business Rescue in Legislature

The South Africa legislature provides for business rescue in Chapter 6 of the Companies Act 17 of 2008. The goal of this is to assist companies in financial distress. According to the Act, you could consider a company as being financially distressed if the following apply to it:

• There is a reasonable likelihood that the company won’t be able to pay off its debts as they become due. This type of insolvency is commercial insolvency.
• It appears likely that the company will become insolvent within the 6 months succeeding their debts becoming due. This type of insolvency is factual insolvency.

 Business Rescue aims to assist businesses in financial distress. There are a few different ways to determine if a business is financially distressed.

This notice may also give rise to action by the CIPC. They may put the company in financial distress on notice to satisfy the commission. Specifically, they will need to provide reason why the company should be able to continue trading. It should also be able to provide that the company can pay its debts when they fall due. The company must submit this to the CIPC within 20 days. Failing this, the CIPC may issue a notice requiring the company to cease trading.

The Commission has committed to not exercising its powers to stop companies trading during Covid-19. This applies only if the impending insolvency relates to Covid-19. Failing to send out this notice may lead to personal liability for the directors. This is because they may contravene the provisions of the Act and cause losses to creditors still trading with the company. Have a query related to business rescue or financial distress? Corporate Business Rescue can assist you. Visit our contact page if you need to get in touch.