How to rescue your business from the impact of COVID-19

Many businesses in South Africa face the very real risk of closing their doors permanently as a result of their inability to trade during the lengthy full lockdown imposed due to the COVID-19 pandemic. Business owners are overwhelmed with the stress and anxiety of how to rescue their business in such a difficult economic period. There are, however, several measures businesses could pursue to avoid bankruptcy and liquidation.

Top amongst these measures is business rescue proceedings in terms of the Companies Act, 2008. Voluntarily opting to commence business rescue proceedings will, in the short term, suspend any formal steps creditors may take to recover amounts owing, ensures the continuation of the business, and brings in an objective business rescue practitioner to assist with developing a business rescue plan. Unfortunately, the commencement of business rescue proceedings does not necessarily suspend legal action against those who have stood surety for the obligations of the business, and the business will have to pay the business rescue practitioner’s fee. One of the biggest drawbacks of business rescue proceedings is the lack of control over the procedure, the potential that the business rescue practitioner doesn’t understand the needs of your business, and if the business rescue practitioner believes that the business is not capable of being rescued, they must take steps to place the company in liquidation.

An alternative to business rescue is to approach creditors to agree to a compromise of debts in terms of S155 of the Companies Act, 2008. The preparation of an offer of compromise entails similar steps to those a business rescue practitioner would have to take but the business owner retains full control of the business and is not forced into liquidation if the offer is rejected by creditors. If there is sufficient support from creditors it can become binding on all creditors. The downside of this approach is that it does not suspend legal proceedings against the business and entails revealing a substantial amount of financial details to creditors.

Other options to consider in attempts to avoid liquidation include applying for further finance; taking advantage of debt repayment holidays that many of the commercial banks have offered; renegotiation of employment contracts to lower salaries and defer bonuses; applying for relief under the various government relief funds; and temporary tax breaks being offered. Business owners could also consider the sale of the business to salvage some of their investment and be released from suretyships.

Our team of experienced practitioners are available and able to expertly guide you to choose the best option to recover your business.

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