Business rescue in South Africa and its practical application to SME's (small to medium enterprises)
South African small to medium sized entities are the bread and butter of our economy. Providing much-needed employment and developing skills both formally and informally to historically disadvantaged persons are some of the most significant benefits of small to medium sized entities in a developing country such as South Africa. Unfortunately, despite these highly celebrated significant contributions to the socio-economic development of the country, South African small to medium sized entities have the lowest survival rates in the world, resulting in high rates of business failure and job losses created by these entities. The Companies Act 71 of 2008 provides for a corporate rescue system in the form of business rescue and a compromise between a company and its creditors which replaces judicial management as a corporate rescue procedure for South African companies. Business rescue provides companies in financial distress with opportunities to reorganise, strategize and come up with useful corporate reorganisation measures which are useful and efficient in saving the financially distressed company and possibly yielding a better return for the creditors than would have been the case if the company was liquidated. This study analyses whether the overall South African corporate rescue systems, past and present, have developed in line with the needs and interests of South African Small to medium-sized entities, in a manner that is efficient and sensitive to the inherent weakness of our economy as well as the distinctive needs of small to medium sized entities. A comparative study with similar procedures in the United Kingdom and the United States of America is undertaken to determine whether the evolution of South African corporate rescue laws meets the needs and interests of small- to medium-sized entities in the modern South African economy. Several inherent weakness are identified in the new business rescue regime as well as in compromises between a company and its creditors and a number of recommendations are made to improve the current provisions in the Act, for the purpose of making access and use of these corporate rescue procedures less burdensome and accessible for small- to medium- sized entities. This is done with the purpose of assisting the South African legislature in developing a corporate rescue procedure tailor-made for South African companies and not a mere cut and paste corporate rescue system unfitting to the needs and interests of South African small- to medium-sized entities.
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