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The Battle of Business Rescue

Business rescue proceedings − whose interests are really protected?

Nicolene Schoeman-Louw




The newly introduced concept of business rescue (in terms of the Companies Act of 2008) has inspired a lot of discussion in the last few months. Cases attracting attention include 1time Airline, Top TV and the lesser-known matter of the Newcity Group, where liquidation proceedings have commenced, as business rescue was refused.

These examples, along with a string of other high-profile liquidation proceedings making the news recently, prove − if nothing else − that the business rescue concept is widely misunderstood and consequently abused.

The fundamental principle of business rescue proceedings, as Keith Braatvedt adequately put it in Without Prejudice (November 2012), is as follows:

“The courts have, unless a proper and motivated business rescue plan is pleaded which demonstrates a reasonable prospect for rescuing the company, consistently dismissed the business rescue application and liquidated the company…. A close scrutiny of the actual rescue platform presented and the rationale mounted on that platform was required in order for the court to determine whether the proper threshold had been met; namely whether the is a reasonable prospect of achieving a rescue through the statutory objectives.”

Therefore, it is common cause that, broadly speaking (among other requirements to be met), when making an application for business rescue, a plan setting out the reasonable prospects of rescuing the distressed company should be submitted.

Any application for business rescue brought for the sole intention of delaying imminent liquidation proceedings will, therefore, fail − especially where there is no reasonable prospect of rescuing the company but the plan does not disclose this.

The case of Newcity Group Pty Ltd

This was clearly illustrated in the application for the final winding up of Newcity Group Pty Ltd, an unreported case also cited by Braatvedt (see above). In this matter, an application was brought for the final winding up of the company.

Subsequently and concurrently, a shareholder brought an application for business rescue pursuant to the provisions of Section 131 of the Act. This case was particularly conspicuous because the judge noted that the application brought by the shareholder constituted an ‘abuse’ of the provisions and consequently the business rescue application failed.

When inspecting the business rescue plan proposed by the shareholder, the judge noted that it was common cause that the company was unable to pay all its debts yet the value of its assets exceeded its liabilities. However, the essence of the business rescue plan was to realise the assets to pay its liabilities and/or service its debts.

When considering all the facts of the case, including the shareholder’s record of failing to disclose all the relevant facts, it was found that the business rescue plan was not genuine. Consequently, as stated, the application failed.

From this point, it is important to note that not only should a business rescue plan prove the distressed company can actually be rescued, but the best interests of its creditors should also be considered alongside the plan’s veracity.

The case of Southern Palace Investments 265 Pty Ltd

The importance of seriously considering the interests of creditors as well as all other stakeholders is emphasised in the Act, specifically in Section 7 (k). This states that one of the purposes of the Act is ‘to provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders’.

In this case (the judge in the Newcity Group case referred to this), the Court’s further aim is to make the purpose and extent of business rescue proceedings very clear in that it states:

Business rescue does, however, not necessarily entail a complete recovery of the company in the sense that, after the procedure, the company will have regained its solvency, its business will have been restored and its creditors paid. There is also the further recognition that even though the company may not continue in existence, better returns may be gained by adopting the rescue procedure.”

Furthermore, the court still has discretion over whether or not to grant the application, which is to be exercised with due consideration to the specific circumstances of each case.

The Court explained the concept and the guidelines for granting business rescue as follows:

 “Every case must be considered on its own merits. It is difficult to conceive of a rescue plan in a given case that will have a reasonable prospect of success of the company concerned continuing on a solvent basis unless it addresses the cause of the demise or failure of the company’s business, and offers a remedy therefor that has a reasonable prospect of being sustainable. A business plan which is unlikely to achieve anything more than to prolong the agony, ie. by substituting one debt for another without there being light at the end of a not too lengthy tunnel, is unlikely to suffice. One would expect, at least, to be given some concrete and objectively ascertainable details going beyond mere speculation in the case of a trading or prospective trading company, of:

24.1. the likely costs of rendering the company able to commence with its intended business, or to resume the conduct of its core business;

24.2. the likely availability of the necessary cash resource in order to enable the ailing company to meet its day-to-day expenditure, once its trading operations commence or are resumed. If the company will be reliant on loan capital or other facilities, one would expect to be given some concrete indication of the extent thereof and the basis or terms upon which it will be available;

24.3. the availability of any other necessary resource, such as raw materials and human capital;

24.4. the reasons why it is suggested that the proposed business plan will have a reasonable prospect of success.”


Although the objectives of the Companies Act are clear, and although writers such as Braatvedt  have also noted that the age of creditor supremacy is over, business rescue should not be applied as a delaying tactic for the inevitable.

Rather, it should be applied by financially distressed companies that are genuinely able to make a tangible and positive difference to all stakeholders through business rescue. In other words: to serve the best interests of all stakeholders as a collective must be served.

It would most certainly seem that our Courts are not inclined to grant these applications lightly. In this sense, perhaps the concept of business rescue is not too far from its predecessor, judicial management after all.

Further clarification by our courts and possibly the legislature should clearly address this in time.

Nicolene Schoeman – Louw is an admitted attorney of the High Court of South Africa, as well as being a Conveyancer, Notary Public and Mediator. She is the Managing Director of Schoemanlaw Inc Attorneys, Conveyancers and Notaries Public (Schoemanlaw Inc Attorneys) in Cape Town. Visit for more information or email


Innovative Business Solutions And Compliance

Compliance with certification is a strong way to demonstrate that you are managing your business proactively.




As a business owner, you are probably aware of where your business could improve. Sometimes a business owner would like to improve their business but is not sure how to begin. Therefore, it is of the utmost importance to develop an environment which will foster innovation and create key steps to improve your business while simultaneously trying to comply with all of the necessary legalities.

It is important for an entrepreneur to assess their situation first. Most business owners will ask the question why? Why can’t everyone will follow the same steps to success. Every business is different and unique, therefore, before you start making changes within your business, it is a good idea to make sure you have a full understanding of the factors affecting your business success and whether you are complying with necessary legalities.

Compliance may actually improve performance by giving your business a competitive edge. Legal compliance can assist you with improving your customer relations, enhancing your reputation and most importantly avoiding the cost of legal proceedings.

There’s this saying, ‘What gets measured gets improved’ explains Charles Gaudet, founder and CEO of Predictable Profits, a consulting firm that offers advanced marketing techniques to entrepreneurs who are passionate about expanding their small businesses.

Related: Compliance For Entrepreneurs

Here are a few strategies that you can use to make your business more profitable in the future.

Innovative Marketing solutions

For every business owner, marketing is an important tool to improve their businesses. You may think that you are missing an opportunity if you don’t jump right attracting customers with some type of marketing message.

However, as quoted by John Rampton ‘’one of the best things you can do to achieve growth is to slow down and spend time studying the trends.” What does this mean?  While rushing into marketing your product you tend to forget certain details, and once it is out in the public its difficult to forget or to undo. Therefore, its very important to research the market and consumer trends before launching anything.

This becomes very important when you consider the potential risk to your business for the infringement of another product, which is confusingly similar to your product. You also do not wish to be guilty of using a similar brand name, slogan or logo as one of your competitors.  Therefore, before you set out your personalised solutions when designing ads and directing messages to consumers ensure you are not infringing on anyone else’s rights as this will likely lead to expensive legal costs for your business.  

Compliance Breeds Confidence

It is important to remember that clients are concerned whether suppliers are properly compliant. Compliance with certification is a strong way to demonstrate that you are managing your business proactively and that the money a customer will spend i.t.o. buying your goods or services, is in safe hands. Conversely a failure in compliance can, as well as exposing you to the risk of regulatory sanctions, severely damage your business’ credibility.

Related: Why HR Legislation Compliance Can Curb Business Failure

For example, in the financial services industry there is an increasing requirement to demonstrate strong security to both external auditors and prospective customers.

With regulation that you feel is of no value, determine how to satisfy the requirements with the minimum effort necessary. Do, however, double check that you are not missing out on a benefit that may be rewarding for your business.

In conclusion, it is important to note when improving your business one always need to act in accordance with the correct laws and procedures. Therefore, if a company is embracing the difficult task of being compliant, I recommend using this as a competitive weapon to improve your business. It just might end up making you and your team better which is usually rewarded with more business.

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Policies and Procedures – A Critical Business Support Tool

No longer just an administrative burden, policies and procedures are an essential business support tool in a complex business environment.

Neil Summers




In South Africa, SMMEs account for more than 70% of the overall employment rate. It’s critical, therefore, that SMMEs maintain both stability and growth concurrently – our country’s economic development depends on it. However, the tension between stability and growth must be managed, particularly in today’s complex regulatory environment with its ever-increasing compliance requirements.

Smaller organisations often consider policy creation, management and distribution as an administrative burden. Fortunately, growing numbers of small business owners and managers are realising that accessible and clearly-written policies and procedures are essential to business success.

Companies that create, manage and distribute clear policies and procedures reap significant business benefits, some of which are highlighted below.

Consistency and Stability

Clear policies and procedures ensure that staff and management adhere to specific ways of working, minimising time spent on analysis and interpretation, while creating consistency and stability across the organisation.


Policies and procedures allow new hires to onboard quickly, while ensuring they adhere to standard practices and controls.

Related: Your Business Needs a Corporate Governance Policy


Health and safety policies not only protect staff, but also visiting clients and stakeholders.



It is important to define boundaries around a position or role. Employees must know and understand their respective responsibilities.

Cost Efficiencies

Standardised procedures lead to cost efficiencies from both time and resource perspectives.

Geographic Spread

Policies and procedures allow organisations working in different areas to develop a uniform approach to business processes which, in turn, supports internal staff transfer when and if required.


Businesses operate in a highly regulated environment. Proof of compliance is not only required in terms of the regulatory environment, but also in terms of risk management and governance. SMMEs do not always appreciate the value demonstrable risk management and governance structures can have, albeit as intangible assets. These structures enhance the oversight role of any business, providing more developed and sustainable business strategies. An additional benefit is the ability to manage liability arising from negligence or malpractice suits. It is no longer enough just to have a policy in place though – distribution and access must be shown.

Related: HR Management Basics For The Small Business

Learning Culture

SMMEs can create and develop a learning culture depending on the availability and distribution of policies and procedures. Tests and assessments linked to specific policies confirm knowledge transfer, formalising both learning and the eligibility to complete tasks.

Given the ever-increasing complexity and competitiveness of business today, policies and procedures provide the parameters and guidelines of business operations, enhancing efficiencies, increasing value and promoting professionalism. Policies and procedures are no longer just an administrative function, they are a critical tool for business success.

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4 Vital Differences Between King III And King IV™ On Corporate Governance

Ilana Steyn, unpacks some of the most significant differences between the Institute of Directors in Southern Africa’s (IoDSA) latest report on corporate governance, the King IV Report, and its former version, King III.

Ilana Steyn




April 2018 marks a year since the effective date of the IoDSA’s (Institute of Directors in Southern Africa) latest report, the King IV Report on Corporate Governance ™ (King IV™), on effective and ethical corporate governance.

What is the King Report?

If you’re not familiar with the King Reports: it’s a series of reports that translate international standards and big-time happenings on corporate governance into set of local principles. Each new Report replaces the former.

The aim of the King Report is to set up actionable principles for South African company leadership to act as modern, good corporate citizens.

It also ensures those in leadership positions act in the best interest of the company and all parties influenced by the company. The first Report, King I, published in 1994, and was the first officiated document of its kind in South Africa.

Related: How To Say ‘No’ At Work (Infographic)

Why is it useful to my business?

The Report also promotes transparency within your company’s leadership to ensure transgressions aren’t hidden that will eventually damage the company. The Report also ensure blunders can be evaluated, found and corrected ASAP. Today, its mandatory for all JSE listed companies to implement the Report into their company policy.

If you’re a smaller business or a non-profit, you can comply with the Report voluntarily; by applying the principles you’re essentially ensuring the long-term sustainability and survival of the business.

It also helps that create a healthy corporate culture and when your business’s foundation is healthy, growth is unthreatened.

If you haven’t applied any of the former Reports in your business, you’re in luck; King IV™ is the simplest, and seemingly the most practical, Report in the family of four reports.

Why was King IV™ needed?

Companies, especially smaller businesses, often struggled to apply the King III due to its long-winded structure.

King IV™ was needed because King III, published in 2009, was out-dated in terms of present-day concerns like technological advances, the increased need for online transparency, long-term resource sustainability and information security.

Here’s the rundown of the most significant differences between King IV™ and King III.

1. King IV’s™ structure is much simpler to apply

While King III did a good job of summarising the extensive scope of effective and ethical governance into 75 principles, the Report still lacked clear guidance on real-world application.

Ensuring the effective incorporation of all 75 vague, ethical principles was too exhaustive for most companies to implement, monitor and account for.

That’s why King IV™ took a different structural approach. King IV™ boiled good corporate governance down to 17 simplified principles, each supplemented with various recommended practices to make it easier for smaller companies to implement the principles within their day-to-day running.

2. King IV™ spotlights practical implementation

King III lists multiple ethical principles and then commands companies to explain how their management and actions honour those principles. Unfortunately this meant companies approached it like a mindless compliance checklist.

King IV™ also states principles, but more importantly, requires organisations to actively report on the implementation of the recommended practices thereof.

Mervyn King, the chair of the King Committee, dubs this the shift from a “apply OR explain” mentality to a “apply AND explain” mentality. The Report also allows organisations to report on alterative-implemented practices – provided they support and advance the principle.

Related: How to Make Your Business Model Go the Distance

To make the application simpler to grasp, King IV™ clearly differentiates between the long-term Outcomes, the ethical Principles and the recommended Practices. Essentially the new structure and its requirements mean companies have to engage in thoughtful implementation and reporting of those practices.

3. King IV™ is inclusive to more than just large companies

After King III, there was a significant demand for the inclusivity of smaller businesses, and governmental or non-profit organizations in the King Report.

Consequently, King IV™ dedicates an entire supplement chapter to guiding municipalities; non-profit organizations; retirement funds; small and medium enterprises and state-owned entities in the implementation of the Report.

Also, where King III used terms like “companies” and “boards”, King IV™ very purposefully uses more inclusive terms like “governing bodies” and “organizations” throughout the report. It’s clear that King IV™ aims to move the principles on good corporate governance into real-world action – for all organisations.

4. Difference 3: King IV™ pushes for more accountability, transparency and reporting

What King IV™ does quite differently from King III, is recommending the application of its principles within set timelines, reports and committees within it’s recommended practices.

King IV™ strongly propagates transparency, the delegation of responsibility and the implementation of accountability by putting pen to paper in term of officiated aims, bodies responsible for those aims and the provisions of consistent reports.

Take leadership as an example, where King III would just stipulate what being a good leader means, King IV™ advises you to set goals, delegate responsibility and evaluate progress through reports and accountability.

An example would be to set up a committee, consisting of lower management levels, with clearly identifiable responsibilities and then to measure their progress via reports. It comes down to the ignorance no longer being a valid excuse. Directors should be aware of all issues within your company.

Directors should take responsibility for everything that happens within their organisation – you can’t plead innocence on the grounds of not knowing. There should rather be reports in place to identify and uncover any discrepancies early on.

Essentially, where King III lacks in the aim of ensuring the actualization of good corporate citizenship, King IV™ steps up the game.

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