Business rescue — lifeline or delay tactic for struggling companies?

Business rescue (BR) is hot right now – and not just because South African Airways (SAA), perhaps one of the more infamous BR cases, has been in the headlines again. The Constitutional Court recently announced a decision that clarifies who has a say in BR plans, with major implications. 

Until fairly recently, any struggling South African company walked a tightrope over the threat of insolvency. In the current economy, we have the BR safety net – a way of recognising trouble without giving up entirely. 

BR, as per the Companies Act 71 of 2008, effective from 2011, targets “rehabilitation of a company that is financially distressed”. It can end in a return to business or surrender.

The company is given some grace on its debts, and new funders can come in and offer extra support, with an independent BR practitioner hired to oversee the process. 

We are not the only country that tries to give a company more options before bankruptcy. The UK has different restructuring plans, and Canada has the Companies’ Creditors Arrangement Act.  France, Germany and Japan have their own versions. 

To be or not to be

Not everyone is a fan of BR.

“The business rescue process has had a bad reputation in the past for delaying the inevitable, where companies are insolvent, and they try to delay the process and strip assets. But if you look at the regulation and where it’s going, I think it’s a good process,” said Koos Benadie, director of insolvency, business rescue and restructuring at Barnard Incorporated Attorneys.

There are various arguments for and against BR. The consensus seems to be that BR can help, if done right – that caveat is key. 

“Business rescue isn’t there to save all companies,” said Julian Jones, a partner at Webber Wentzel Attorneys. 

“Some companies can’t be saved, and the liquidation process is still a valuable tool. Sometimes business rescue is abused. I think out of every 10 I see … I would say three or four really shouldn’t be there, and they are just delaying the inevitable.”

According to Eric Levenstein, head of insolvency and business rescue at Werksmans Attorneys, it may help if companies spoke to BR advisers at an earlier stage:

“If you leave it too late, generally the plan won’t be approved or it won’t be successful.”

Benadie, however, says that “one of the stigmas behind business rescue is that the business rescue practitioner is there to protect the shareholders and directors of the company.

“So what happens then is your financiers come in with a negative attitude because they’re of the view [that] the practitioners are there to block their recovery.”

He sees BR as a creditor-driven process where you act in the interest of the company and the affected persons. Nonetheless, he warns that “you have to identify the right candidate before you implement it”.

State-linked companies with essential duties, like SAA and the South African Post Office, are good theoretical candidates for BR, said Benadie.

In SAA’s case, the size and complexity of the business made things tricky, he noted:

“One of the shortcomings in the business rescue process … is that they envisaged that a business rescue would be completed within three months. Now, if you look at the amount of creditors involved in the size of that business, it was just never realistic that you could develop a plan and turn around a company in that space of time.”

It’s a tricky balance between setting an achievable time frame and avoiding the trap of protecting “a business that is terminally ill”, Benadie added.

View from the executive’s desk

Blacky Komani, the chair of FlySafair and former CEO of 1Time, the low-cost airline that entered liquidation back in 2012, said BR may not be an ideal fit for air carriers.

He explained that an airline going into BR can result in passengers booking closer to the time that they plan to fly.

The shorter lead time creates a cash-flow issue for the already cash-strapped airline, and a vicious cycle forms, whereby the very process that was supposed to help the company ends up hurting it.  

“The second thing is that creditors want you to pay up front on the cash that you don’t have. So you start paying up front, you don’t have a credit line, and then your lessors will ask you to increase the guarantees.”

Things can worsen by the day while “the business rescue practitioners still get their fees. It’s not their fault,” Komani added. 

He sees a little room for improvement in the trust between BR practitioners and the companies they are trying to help. Practitioners who assume “management is incompetent” can waste time “trying to reinvent the wheel”, he said. 

“You spend about two months trying to convince each other that we’re not the problem – we’re part of your solution. We want this thing to survive. But sometimes they treat you with suspicion,” noted Komani. 

“Not everyone is a bad person… There are people within the organisation that want to save the company.”

In his experience, creditors were understanding of the BR process, even though they had to call it quits eventually. 

As is often the case, honest communication is a good idea. 

“Management was visible to the staff ... we knew that we were in trouble,” explained Komani. “They knew the direction, the remedies that we bring on board and what is the likely outcome of this. So, communication with your union, trade unions ... your staff and ... your creditors is what keeps the team together.” 

Court clarification

Leading up to the ConCourt’s ruling, the high court and the Supreme Court of Appeal had opposing views on the role of post-commencement creditors – the people who agree to loan a company money after it has entered BR. 

The final ruling came out in early October: this type of creditor will not have the right to vote on adopting the BR plan. 

“The court felt that you need to build a business rescue plan around a defined body of creditors, pre-commencement creditors, those that were owed money at the time the company enters into the business rescue process,” explained Levenstein. 

“It creates certainty, predictability and I think adds to the efficient administration of rescue proceedings going forward.”

Benadie holds a similar view: “What the court found is due to the preference of post-commencement financiers and the security that they can arrange in business rescue, they already have that advantage... So they don’t have a place at the table when it comes to the Section 151 meetings where you vote on the plan.

“Essentially, all plans that were approved in the past three years, where PCF [post-commencement financing] creditors had a vote, could essentially be reviewed, or reopened, for that matter, because that could have impacted the business rescue process and the voting,” he says.

Benadie does not necessarily expect this outcome, though he noted it remains a real possibility that “will be tested in the near future”.

Views are divided on the ConCourt ruling.

“You get the practitioners that [are] of the view that it’s a good decision, and that voting should essentially rely on the affected persons, and then you’ve got the other school of thought where they’re of the view that this decision might deter post-commencement financiers to actually get involved in business rescue proceedings, as they won’t have a vote in the outcome,” explained Benadie.

“There’s still enough scope for this to develop and not actually negatively impact your post-commencement financier, but if you look at the issue that you have where a post-commencement financier comes in and they dictate the process, they can actually take over the business rescue process, and then your original affected persons remain with their fate in the hands of the post-commencement financiers. I don’t see [the court ruling] as negative, or the end of business rescue.”

Levenstein imagines a scenario where creditors lay down clear terms before they lend money, knowing they cannot vote on the BR plan – specifying interest, how they want the money to be repaid and when.

“The other thing that I think will happen is that you might see the banks offloading what they call their NPLs, non-performing loans, to third parties who want to buy up debt and maybe then look at providing further PCF into the business rescue plan,” he added. 

“I don’t think we’re going to see a massive pushback on the amount of PCF available in the market. I might be wrong; time will tell.”

The human cost of slow rescues

BR has been painfully prolonged for Vantage Goldfields, whose Barbrook and Lily mines entered BR back in 2016 after three workers died in an underground pillar collapse. 

Being mired in litigation for the past decade has meant the remains of the dead workers have not been recovered. Workers had also not received payment until a new buyer, Lions Bay Resources, agreed to take over. 

Lions Bay Resources drew specific attention to the ruling on post-commencement creditors, as one had applied to overturn the BR plan. The high court heard the application in October, and judgment remains pending.

In November 2024, ActionSA made a formal offer to retrieve the bodies and has kept up pressure on government to address the tragedy. 

“Hopefully, in the next couple of months, there can be finalisation of the matters,” said Benadie, whose firm became involved in the case in 2024. 

When BR does not go smoothly, it doesn’t just hurt a company’s bottom line – it hurts the communities in which a company has been operating. 

BR is not going anywhere, in Levenstein’s view, particularly as companies weigh up cost pressures tied to the US war with Iran. 

A report from the insurer Allianz forecast that global insolvencies will rise 5% in 2026 and a further 1% in 2027, after rising 6% in 2025, which would mark five consecutive years of increases.

In this climate, we need a rescue process that incentivises efficiency and making the right calls for the company and the workers who rely on it. DM