Business rescue has been an integral part of SA’s legal and restructuring landscape for more than a decade. It has since its inception served as an effective means through which financially distressed companies may be rehabilitated and restructured through a formal restructuring process.
Accordingly, the test for financial distress is simple and comprises a six-month “forward-looking” test that contemplates either commercial insolvency or factual insolvency. For a number of reasons boards of companies experiencing financial difficulties often decide not to file for business rescue proceedings and allow the companies concerned to continue to operate under financially distressed circumstances — outside the formal business rescue process and much to their peril.
Given their nature and prescribed content, several unfavourable outcomes may flow from the issuance of section 129 notices to affected people. Liquidation applications, compulsory business rescue applications and creditor enforcement processes readily come to mind. For these reasons it comes as no surprise that few boards of directors comply with the statutory prescripts of section 129.
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Boards of distressed companies overlook notice rules at their perilThe law does not provide for a noncompliance sanction, but that does not mean they cannot be held liable
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