What is the meaning of 'rescuing the company' in terms of the new Companies Act?
According to the wording used in the new companies act, ‘rescuing the company’ means achieving the goals set out in the definition of “business rescue”. It accordingly has two goals: a primary goal, which is to facilitate the continued existence of the company on an solvent basis or, a secondary goal, in case the first fails, is to achieve a better return for the creditors or shareholders of the company than would result from immediate liquidation of the company.
The question that arises is can a business rescue plan succeed where the proposed plan provides for the secondary goal only. In other words, whether the requirement of ‘rescuing the company’ is satisfied where it is clear that the company can never be saved from immediate liquidation and that the only hope is for a better return than that which would result from liquidation.
In Australia it is accepted, that recourse to the rescue provisions of that country’s corporations act – which are not dissimilar in wording to our business rescue provisions – need not necessarily be to save the company from liquidation. The dictionary meaning of ‘rescue’ and ‘rehabilitate’ both of which convey the notion of a return or restoration to a normal healthy state.
The court found in the case of Oakdene Square Properties and others vs Nedbank and others that the relevant sections of the new companies act provides that ‘business rescue’ means to facilitate ‘rehabilitation’, which in turn means the achievement of one of two goals: to return the company to solvency, or to provide a better return for creditors and shareholders. The court found that the achievement of any one of the two goals would qualify as ‘business rescue’.
The Court raised the rhetoric questions: why, as a matter of common sense and policy, should this be so? Why should a company not be temporarily protected against claims of creditors if that will allow the sale of the business as a going concern at optimum value, in order to give creditors and shareholders a better return than would result from liquidation? Academic writers have suggested that this insistence on an eventual return to solvency was one of the reasons why the institution of judicial management under the old companies act turned out to be an ‘abject failure’ The court found that it can be accepted with confidence that the legislature did not intend to repeat the mistakes of the past.