Through the New Companies Act, the business rescue practitioner gets the responsibility as an officer of the Court to develop and implement, if approved, a plan to rescue the company that maximises the likelihood of the company continuing in existence on a solvent basis. This often results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.
The purpose of business rescue
The purpose of business rescue is to allow the practitioner the opportunity to take control over the management of the company with the view to improving the financial standing of the company to the benefit of creditors, employees and all other interested parties.
The financial standing of a company cannot reasonably be improved overnight or within a few months. In order for business rescue proceedings to be effective and for the business to be profitable and sustainable, the practitioner must be given a reasonable time frame within which to successfully implement the business rescue plan.
The duration of business rescue proceedings therefore must be subjective and tailored to suit the financial situation and potential of the particular company in question. It would be an injustice to apply strict and narrow time frames within which business rescue proceedings should be implemented.
In the interest of all parties, however, business rescue proceedings also cannot be given unlimited reign and an indefinite period within which to be implemented. In order for a practitioner to effectively and speedily attempt to turn around the company, strict controls, measures and forms of accountability need to be kept in place in order to protect the interests of all affected parties. Section 132(3) of the Companies Act creates that very instrument of control and accountability.
In terms of section 132(3) of the Companies Act, if a company’s business rescue proceedings have not ended within three months after the start of those proceedings, or such longer time as the court, on application by the practitioner must:
a) Prepare a report on the progress of the business rescue proceedings, and update it at the end of each subsequent month until the end of those proceedings; and
b) Deliver the report and each update to each affected person, and to the:
- Court, if the proceedings have been the subject of a court order; or
- Companies and Intellectual Property Commission (the commission), in any other case.
After implementation of the business rescue plan, whether successfully or unsuccessfully, there comes a point where the practitioner must eventually evaluate the financial standing of the company and terminate business rescue proceedings.
In terms of section 141(2) of the Companies Act if, at any time during business rescue proceedings, the practitioner concludes that:
a) There is no reasonable prospect for the company to be rescued, the practitioner must:
- Inform the court, the company, and all affected persons accordingly; and
- Apply to the court for an order discontinuing the business rescue proceedings and placing the company into liquidation;
b) There no longer are reasonable grounds to believe that the company is financially distressed, the practitioner must inform the court, the company, and all affected persons, and
- If the business rescue process was confirmed by a court order or initiated by an application to court, apply to a court for an order terminating the business rescue proceedings; or
- Otherwise, file a notice of termination of the business rescue proceedings with the commission
Tools at your disposal
Business Rescue is another tool that the business owner has in his or her arsenal in these tough trading conditions but it is not an easy road and it reminds me of this parable below:
Frog in a Milk-Pail
A frog was hopping around a farmyard, when it decided to investigate the barn. Being somewhat careless, and maybe a little too curious, he ended up falling into a pail half-filled with fresh milk. As he swam about attempting to reach the top of the pail, he found that the sides of the pail were too high and steep to reach.
He tried to stretch his back legs to push off the bottom of the pail but found it too deep. But this frog was determined not to give up, and he continued to struggle. He kicked and squirmed and kicked and squirmed, until at last, all his churning about in the milk had turned the milk into a big hunk of butter. The butter was now solid enough for him to climb onto and get out of the pail! The lesson: Never Give Up!
Business rescue proceedings must end if the practitioner decides that the company cannot be rescued, or if his rescue plan is rejected, or if the company emerges from financial distress, or finally, if the business rescue is successfully implemented.
Can Your Words Be Used Against You?
Yes, they most certainly can. Here’s what the RICA Act has to say about recordings.
“This call may be recorded for quality control and records purposes…” Anyone who has been on hold with insurance companies would be familiar with these words — but what are the implications of a recorded conversation and when is it legal?
In essence, the Regulation of Interception of Communications and Provision of Communication-Related Information Act of 2002 (mercifully shortened to ‘RICA’) permits any person, who is a party to a conversation to record that conversation, provided that it is direct communication — which is defined as oral communication between two or more persons that occurs in the immediate presence of those persons.
Section 4 of the RICA Act governs this aspect of our monitoring law. What is unclear, however, is the degree to which this extends to legal persons, such as a company that monitors a call centre agent’s performance, for example.
Related: Understanding Shareholder Agreements
Evidence in legal cases
While limited to direct communications and not covered by third party interception, such as an eavesdropper, the lesson here remains pretty stark — you could legally be recorded during any conversation you have.
The implications of this are significant — just ask former Springbok player Luke Watson, who had a conversation recorded during a function in 2008 that was subsequently leaked to the media.
Furthermore, with the widespread use of smartphones, together with applications freely available on the relevant app stores, designed to record cellphone calls, the likelihood of you being recorded — whether you know it or not, is ever increasing.
Beyond the moral or ethical ambiguity of this, the legal ramifications of what is recorded are more certain — the recording may be used against you as evidence in any criminal proceedings, or equally as possible, in civil proceedings where, for example, agreement to a contract or term thereof is in question, or in the insurance company’s case, whether or not to repudiate a claim based on the information you provide to them.
Related: Protect Your SME From PoPI
Know the business exception
Section 6 of the RICA Act contains a course of business exception that allows the interception of indirect communication:
- a) By means of which a transaction is entered into in the ordinary course of business
- b) Which relates to that business
- c) Which otherwise takes place in the course of that business.
While there has not, to my knowledge, been a reported case that deals with this aspect of the RICA Act, the implications regarding the use of this information to evidence the valid conclusion of a contract or as to the intentions of the parties to a contract are significant, particularly given that the scope is relatively broad, although limited.
The matter has, however, come before the Constitutional Court in the 1999 criminal case of S v Kidson, where the court held, per Justice Cameron, that unless a “reasonable expectation of privacy exists” it would be difficult to prevent the recording or interception falling within the ambit of the RICA Act.
Where to from here?
From both a commercial and criminal perspective, this should serve to remind us all of our wise grandmother’s words — if you have nothing nice to say, rather say nothing at all (especially because you never know whether you are being recorded).
Why You Shouldn’t Be Sweating The Fine Print
Signing a contract is a big deal, and you never want to sign anything you don’t fully understand.
While it is almost always a grudge purchase, ensuring that you have had a legal eye cast over a contract you intend to conclude means that you are protected, that you understand the nature of the obligations you are taking on and perhaps, an even better deal for you.
Given that legal agreements are an important aspect of commerce, we have distilled key points for you to consider, before engaging with external counsel. This will make the process more efficient and, hopefully, less expensive.
Reviewing a contract is a tricky business, not entirely different from asking a builder to finish building a half built house. However, there are some useful techniques to ensure you get the most out of the exchange with your lawyer.
Always create a timeline
You have lived and breathed your business and this transaction, while your attorney is possibly hearing about the matter for the first time.
Setting the scene correctly puts your attorney in the picture and explains what you want out of the exchange. Print this out for your attorney.
It will help an attorney identify key areas of risk which you might not have anticipated. Be sure to also tell your external counsel how quickly you need the review to be done. Setting expectations means there is less chance of disappointment later.
Provide supporting documents
It wastes your time and money when your attorney has to come back to ask you for supporting documentation.
Try to anticipate which documents will be relevant to your transaction and bring copies of them to the meeting for your attorney to consider. If you have previous versions of the agreement, for example, bring those too.
Remember, the more background work you do, the simpler and more efficient the process will be.
Understand your needs
Are you looking for a high level overview of your document to highlight some key contractual risks or are you looking for a thoroughly sanitised document reviewed from every possible angle?
I recently had to look over Jim’s Sale of Business Agreement for the potential acquisition of his Technology Company. He came to me with limited areas of risk which he had identified and wanted me to look at these clauses.
I was able to advise him to push back on certain clauses he had already negotiated and the resulting document placed him in a stronger legal and financial position. It was easy to justify the costs associated with the review.
This is not always necessary though — where there is limited legal exposure, or you have no bargaining power, the role of the attorney can be restricted, but still worth the investment since you have assurance that your legal exposure is as restricted as possible.
Be guided by the relative value of the document and the ensuing legal responsibilities — is this a standard supply agreement with a strange payment clause or a multi-national acquisition of intellectual property? The type of expert you engage with will vary, as will the cost of the review.
Areas of concern
Directly related to knowing your business and understanding your needs, is your responsibility to communicate specific areas of concern to your attorney.
A recent client’s business processed a lot of personal information, in accordance with the Protection of Personal Information Act, but, the contractor they were about to sign a service supply agreement sought to have access to some of this personal information.
Seen alone, there was little risk, but within the context of this business, we were able to avoid this. A trusted and qualified expert will help you navigate the complex commercial world.
Are You Protecting Your Customer’s Data?
The collection, usage and sharing of personal information is regulated primarily by the Protection of Personal Information Act 4 of 2013. The Act was recently promulgated and is yet to be implemented. The Act seeks to give expression to the right to privacy provided for in the Constitution.
At the time of writing, the primary enforcement arm contemplated by the Act, the Information Regulator, has yet to be appointed. Once appointed, all businesses will be required to register with the Information Regulator to make public what personal information is being collected, and what it is being used for.
The Information Regulator will be empowered to enforce compliance with the Act, and able to investigate whether an entity is lawfully processing the public’s personal information.
Related: Protect Your SME From PoPI
How are privacy policies affected?
The Act defines the term ‘processing’ broadly, and includes “the collection, receipt, recording, organisation, collation, storage, updating or modification, retrieval, alteration, consultation or use of a person’s personal information”. To process a person’s personal information, the prior consent of the person (data subject) is needed.
The Act restricts a company’s ability to store personal information outside of the country by requiring that it be transferred only to countries in which comparable security laws and data protection measures exist.
A situation such as this arises more easily than expected. Consider the example of the humble contact form: Your website, with its local server situated in Midrand, utilises a plugin to create custom contact forms.
Although your server may be in Midrand, every person who completes the contact form on your website has their personal information transferred and stored on servers in the home jurisdiction of your plugin creator, which may be in the US. But the plugin creator may also make use of third-party service providers based in Vietnam. An in-depth investigation of all third-party plugins and processes of a website is therefore required to ensure that you comply with the Act.
Access by a data subject to personal information
A data subject is entitled to request a full disclosure of any personal information held by the company.
As the procedures governing access to personal information overlap, companies should also ensure compliance with the processes outlined by the Promotion of Access to Information Act 2 of 2000 (‘PAIA’).
In terms of PAIA, all companies are required to compile a manual that needs to be registered with the South African Human Rights Commission. This manual sets out the company’s contact information, what records are available for inspection, the identity of the leadership of the company, as well as the manner in which a person may request access to information held by the company.
However, the Minister of Justice and Correctional Services has exempted private bodies from complying with this requirement for a period of five years, starting from
1 January 2016.
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