Business rescue is about restructuring companies in financial distress. In this article, we will go around all the most frequent interrogations about such practice: what business rescue really is? Is it open to every type of companies? When can a company enter into business rescue? We will aim to provide primary clarifications about a growing solution for companies that will try to avoid liquidation.
How can a company enter into a business rescue proceeding?
There are two common options. The first one is for the board to voluntarily apply to be placed under the supervision of the practitioner. The second one is when an affected person (shareholder, creditor, employee or registered trade union) makes a formal application to the court in order for the company to be placed under supervision.
How does a business rescue work?
If the company is likely to become insolvent (or won’t be able to pay its debt) within the next six months, then the company can be placed under the supervision of a business rescue practitioner. The following one may be appointed by the company itself if the legal duration after the application hasn’t expired. Otherwise, the court will appoint the practitioner itself. The following one will take in charge the management of its activities and capital. Then, it will have to propose a business rescue plan to restructure the company in term of its business itself but also its possessions, debt and liabilities.
What are the objectives of a business rescue?
The objective of the business rescuer is fulfilled if, at the end of the process, the company still exists but also it generates higher returns to the creditors than what they could have expected from a simple liquidation.
How to maximize the chances of rescuing the business?
Like for everything else, the company should start the process at the first signs of financial distress: otherwise, the best solution will be to liquidate the company or find a very unlikely compromise with the creditors.
The likelihood of success in business rescue proceedings also depends on the type of business the company is in. Indeed, companies that are involved in the retail industry are more suitable for business rescue than a company that established itself in the property investment industry. In the second case, a liquidation procedure is more likely to be efficient.
What direct effects does the business rescue have?
The directors remain at their position but the control goes to the practitioner. Concerning the employees, they will remain employed by the company under the same conditions in the case no agreements have been achieved between them and the company. The creditors too will keep on complying with the same obligation to supply goods or services to the company until an agreement is reached.