The COVID-19 crisis is dynamic in nature and its effects are constantly evolving and changing, placing new challenges on business owners’ ability to continuously make swift decisions in this present environment of uncertainty. It is impossible to understand and predict how long this crisis will last or the impact thereof. During this time of crisis, the best thing for your business is to preserve cash in your business.
This can only be achieved by increasing the incoming or decrease the outgoing cash in the business. Depending on your type of business operations, you may simply not be able to increase the incoming cash for a variety of reasons. For instance, mandatory restrictions implemented around the trading of certain goods during certain hours and restricting patrons, as is the case with supermarkets that are only allowed to sell certain basic items during restricted trading hours; alternatively in other business types, your clients may simply decide not to pay you, as they are not being paid (a type of domino effect).
However, if you don’t pay your creditors you are committing an act of insolvency and you may possibly open yourself to be held liable for reckless trading.
Business rescue, as set out in the Companies Act, provides for times such as these, whereby, after an assessment, if your business cannot pay its debts as they fall due for the next six months, you have no choice according to the Act, but to place your business into business rescue.
This is the law, and if you don’t want to follow the law, the Act requires that you tell every employee, creditor and shareholder in writing why you are not following the law by placing the business into business rescue as contemplated in Section 129(7).
Under the hand of a professional and competent business rescue practitioner, business rescue offers the opportunity for a plan to be formulated and implemented. Once a business is placed in business rescue, no person can bring about any enforcement action and the practitioner can legally declare a moratorium on all payments until the proposed business rescue plan has been implemented or the business has returned to profitability. In other words, it gives the competent practitioner the breathing space to do what is necessary to formulate a plan which may conclude in the survival of the business. A competent business rescue practitioner will guide the business rescue through processes in order to preserve cash and through cost-cutting exercises which may ensure that once this crisis passes the business is returned to profitability and to its owner.
We all understand that these are dynamically unusual times that we’ve entered, filled with uncertainty but we also understand that the crisis will pass at some stage. Commencing with business rescue should not be viewed in a negative light and there should be no stigma attached to your business for complying with the law. Your business has become distressed due to a distressed trading environment and not due to mismanagement. It is simply a consequence of a crisis that no one foresaw a short while ago.