Business rescue services are a viable option for a company’s liquidation or winding-up. Many companies may have to assess whether business rescue is a suitable reaction to the economic impact that COVID-19 may have had on their business during and after the pandemic.
What Happens Before You Get Company Rescue Services?
When it comes to company rescue services, here are some things to keep in mind:
The rehabilitation of a financially distressed company is known as a business rescue. It is reasonable to believe that a corporation is in financial crisis if:
- Within the next six months, the company will be able to pay all of its debts when they become due and payable; or
- Within the next six months, the company will go bankrupt.
When a company runs into financial difficulties, the board of directors must decide whether the company should continue to trade or if doing so would be reckless under section 22 of the Companies Act.
When the board of directors has determined that the firm is in a financial crisis, the next consideration is whether the company has a fair chance of being saved.
If the board of directors has reasonable grounds to believe that the company is in financial distress but has not placed it under business rescue or business consulting agency , the board must send a written notice to each affected person (shareholder, creditor, registered trade union, and employee) explaining why the company has not been placed under business rescue.
The decision to send out notice must be carefully considered because it informs the rest of the world that the company is in financial trouble.
This notice may have an impact on the business’s trade activity, for example:
- Creditors have the right to adjust their payment terms.
- Any rescue financing negotiations with banking creditors may be jeopardised; and
- Because it may raise worry among employees and trade unions, it may result in labour action.
Following the start of business rescue procedures, the appointed business rescue expert is given complete managerial control of the company in place of the board of directors and existing management.
During the procedure, the existing management will continue to operate under the supervision of the business rescue practitioner. The business rescue expert is responsible for creating and implementing a business rescue plan.
Conclusion
The financial difficulties could have been triggered by an unforeseeable economic crisis, as a result of the health crisis and lockdown time. In such a case, corporate business rescue services is a feasible alternative to liquidation that can assist a company in regaining financial stability.