In the recent case of Oakdene Square Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami) (Pty) Ltd, the Supreme Court of Appeal set out the following guidelines:

There should be a reasonable prospect of business rescue.  Simply coming up with a plan which is capable of being developed and implemented is not sufficient.  If the plan does not seek to address either of the goals above, a Court should not agree to business rescue;

  1. What is a reasonable prospect is a factual inquiry and each case must be decided on its individual facts.  For example, if business rescue is proposed on the grounds that a business practitioner will obtain a better price for immovable property than a liquidator, there must be a factual basis for such a proposal.  Likewise, if it is proposed that the remuneration of a business rescue practitioner will be less than that of a liquidator (whose fees are calculated as a percentage of the assets of the company), then an important factor that needs to be considered is the period of business rescue proceedings;
  2. Where there are allegations regarding the improper disposition of a company’s assets, liquidation will be more advantageous to creditors and shareholders, since the Companies Act gives the liquidator the power and the machinery to investigate and set aside improper dispositions;
  3. Where a company is factually solvent (the value of its assets exceeds its debts), merely selling immovable property and raising cash for its own sake is of no value.  The cash has to lead to resurrection of the company’s business;
  4. If the majority of creditors indicate that they will oppose an application for business rescue, this intent must be taken into account by a court considering the application for business rescue.

While business rescue may seem an obvious choice, the option of liquidation should not be ignored.  For assistance in making the decision, it is advisable to consult with a reputable commercial attorney.

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