The dangers of exiting business rescue while the business in still in trouble

The dangers of exiting business rescue while the business in still in trouble

Podcast

The dangers of exiting business rescue while the business in still in trouble

Podcast

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Lucinde emphasises the purpose of business rescue is to aid financially distressed companies. This procedure, introduced by the Companies Act, aims to facilitate their rehabilitation. The Act provides certain protections for such companies, including a moratorium on litigation. Creditors cannot initiate legal proceedings against a company in business rescue without court leave or the BRP's consent. Additionally, the business rescue practitioner can suspend certain contractual obligations. This protection falls away when business rescue ends.

Upon commencement, immediate funding becomes essential. The practitioner typically seeks post-commencement finance from banks and private equity firms to address urgent needs like staff payments and rates.

However, Lucinde cautions that while a company is in business rescue, it is important to plan forward. Unfortunately, once a company comes out of business rescue available funding might only cover day-to-day expenses, limiting long-term investment for growth.

Lucinde stresses the importance of learning from past mistakes, particularly in managing costs. A key aspect of a successful turnaround plan, in particular post-business rescue, is avoiding commercial insolvency by ensuring sufficient working capital and cash flow to meet debt obligations as and when it falls due.