The Business rescue process as set out in Chapter 6 of the 2008 Companies Act (operative since 2011) has opened up new and creative opportunities to resolve complex and protracted shareholders’ disputes.

The Business Rescue legislation contemplates proceedings designed to facilitate the rehabilitation of a company that is financially distressed by providing for the temporary supervision of the company and of the management of its affairs, business and property and provides a temporary moratorium on all claims against the company while it undergoes its restructuring through the business rescue process.

Often, a majority shareholder has cause to “fall out” with other shareholders (and directors) of a company for various reasons. These may include a lack of confidence by the majority shareholder in the ability of the minority shareholder and its representatives on the board of directors to properly manage the business of the company going forward, a general break down of trust between directors and the inability of the minority shareholder to continue to meet its funding obligations to support the ongoing business of the company. This might leave the majority shareholder in the unenviable position of having to fund a company on an ongoing basis and where confidence levels in the company’s ability to continue trading on a solvent basis becomes a serious and concerning issue for the majority shareholder.

Continued funding by the majority shareholder often results in the establishment of a large loan account which remains owing to the majority shareholder. There comes a point where the majority shareholder says “enough is enough” and resolves to reject any further funding requests made by the company and particularly where the “problematic” directors remain on board. Once the majority shareholder is no longer willing to continue to fund the company, then the company may be deemed to be financially distressed in that it is reasonably unlikely to be in a position to pay its debts in the next ensuing 6 month period and further is likely to become insolvent (factually) in that it’s liabilities will exceed its assets in the next 6 month period.


If a company is financially distressed, the board of directors are obligated to consider a business rescue process.

Despite these in-house difficulties, often these companies have good businesses, valuable assets, sound intellectual property and the potential to trade profitably but only after a restructuring of management, debt, and prejudicial contracts occurs through a business rescue process.

There are very few options available in the 2008 Companies Act to resolve such an impasse other than to consider the removal of directors which can become a protracted, expensive and litigious process. Often, the extent of the “in house fighting” reaches such proportions that the board has little option but to place the company into liquidation, a very bad and costly outcome for all stakeholders, particularly shareholders.

Recently, we have seen an increase in the use of business rescue as a mechanism to resolve these shareholder disputes (particularly in favour of the majority and funding shareholder) by placing the company concerned into business rescue and forcing shareholders to focus on resolving matters through a buy-out process.

There are two ways in which a company can be placed under business rescue –

  1. voluntarily, by the passing of a resolution to that effect by the board of directors of a company and filing the requisite documents with the Companies and Intellectual Property Commission; or
  2. compulsorily, with an application to Court by any affected person (including a shareholder or creditor) of the company.

In respect of both entry points, if there is no reasonable prospect of rescuing the company the board should resolve to place the company into liquidation or alternatively, the court will do so.

Once the company is placed under business rescue it will be under the supervision and control of the Business Rescue Practitioner (BRP).  The board of directors will remain in place but would be subject to the control of the BRP. The BRP must have access to post-commencement finance (PCF) to pay ongoing expenses (usually put up by the party seeking to acquire the shares or business of the company) in order to keep the company going while it is undergoing its’ restructuring. All PCF that is provided is preferent and the re-payment of such PCF ranks above all other creditors other than the BRP’s fees and payments due to employees that work for the BRP while the company is in the business rescue process. Further, the BRP can retrench employees if necessary but this must be done in terms of applicable labour legislation. Any other employees can remain on at the company and all employment contracts will remain in place.


The BRP must prepare and propose a business rescue plan for approval by creditors and shareholders (if required). Shareholders will only vote on the business rescue plan if their rights as shareholders are affected by proposals contained in the business rescue plan. This would include a proposed buyout or dilution of shareholding or the acquisition of the business.

Any proposed transaction must be proposed and supported by the BRP and included in his business rescue plan. In circumstances where there is an impasse on a similar basis to what is set out above, the business rescue plan might include a proposal for a buyout by the majority shareholder of the minority shareholders shareholding, or vica versa. Shareholders are able to propose a buy out of the minority shareholding, or vica versa, or alternatively propose an issue of new shares from the company’s authorised share capital thereby diluting existing shareholders’ equity in the company. The ability to effect such a re-issue of shares will be determined by the provisions of the company’s existing memorandum of incorporation and any relevant shareholders’ agreement.

If a buyout is being proposed it will be important to ensure that the company’s shares are fairly valued. In this regard, the target shareholding can be bought out at significant discount as these shares would be of negligible value if the company is insolvent or on the verge of liquidation.

A business rescue plan will be validly adopted by 75% of the company’s creditors (in addition to 50% of the independent creditors supporting the plan) and 51% of the company’s shareholders. Once adopted, the terms of the plan are binding on all creditors and shareholders (whether or not they actively participated in the vote).

The risk to the process is of course where any shareholder objects to the plan on the basis of it being unfair or that votes cast are inappropriate. These challenges can end up in litigation/court proceedings.


If a buyout is achieved and the plan is approved, the BRP will remain on board to ensure that the plan is properly implemented. Thereafter the BRP will file a notice of substantial implementation and exit. The company will continue trading but under new ownership and having avoided the consequences of being forced to liquidate a viable and potentially profitable entity.