Secured Investment opportunities have never been beter in South Africa with the introduction of business rescue legislation in Chapter 6 of the Companies Act, Act 71 of 2008 (“the Act”), which came into operation on 1 May 2011.
In terms of Section 135 of the Act claims in business rescue rank in the following order:
The business rescue practitioner, for remuneration and expenses, which includes expenses for legal costs in the business rescue proceedings. These fees and expenses are regulated in the Regulations to the Act
- Employees for any remuneration which became due after the commencement of the business rescue proceedings
- Secured lenders or other creditors for any loan or supply made after business rescue proceedings began (Post commencement funding)
- Unsecured lenders or other creditors for any loan or supply made after business rescue proceedings began (Post commencement funding)
- Secured lenders or other creditors for any loan or supply made before business rescue proceedings began
- Employees for any remuneration which became due before the commencement of the business rescue proceedings
- Unsecured lenders or other creditors for any loan or supply made before business rescue proceedings began
Our Courts have also confirmed the above mentioned ranking of claims. It is furthermore interesting to note that the South African Revenue Services’ claims will rank at the very bottom with other unsecured lenders or other creditors for any loan or supply made before business rescue proceedings began. When business rescue for a company is superseded by liquidation the same ranking of creditors remain except for the claims arising out of the costs of that liquidation.
Business Rescue practitioners are furthermore able to obtain post commencement funding on contractual terms negotiated with post commencement funders and without the vote or approval of other creditors. Claims and/or portions of claims in business rescue can also be converted to equity in the business in order to even further strengthen the security of investors.
Despite the clear advantages associated with post commencement funding the majority of major Financial Service Providers in South Africa are electing not to consider granting post commencement finance to entities in business rescue. This has opened the door for smaller investment companies to rise to the occasion and in circumstances where the process of business rescue is properly regulated, post commencement funding is creating staggering returns on investment.
In order to realize the full potential of investment opportunities in the form of post commencement funding, it is imperative that investors join forces with specialists in the field of business rescue and Insolvency. Cawood Attorneys have been at the forefront of business rescue and Insolvency in South Africa since the incorporation of the new Act.
South Africa has seen approximately 1100 businesses electing to go under business rescue. Cawood Attorneys have been directly or indirectly involved with 114 business rescue matters, with the figure growing on a daily basis. With the demand for business rescue growing on a daily basis Cawood Attorneys have also associates with 6 business rescue practitioners, reputable business rescue valuators, liquidators, auditors and specialist counsels.
Our firm therefore has the necessary infrastructure and expertise for evaluating and monitoring the risk associated with post commencement funding in South Africa.