Introduction
In this article I look at the contents of an application to place a company under corporate rescue proceedings made in terms of the Insolvency Act (Chapter 6:07) of 2018, the “Insolvency Act” or “the Act”.
Contents of an application for corporate rescue proceedings
The contents are explained under the various subheadings for convenience.
Court application
This application is made in the form of a Court application in terms of section 124 of the Insolvency Act read together with sections 121 and 131. In the application the applicant who should be an affected, gives notice to the cited respondents, that he or she intends to apply at the High Court for an order in terms of a draft order annexed to the application and that the accompanying affidavit and documents will be used in support of the application.
Respondents who wish to oppose the application will be required to file a Notice of Opposition using the prescribed form, Form No. 29A, together with one or more opposing affidavits, with the Registrar of the High Court within the allowed time, usually 10 days.
The address of service for the applicant, usually the business address of his or her legal practitioners, will have to be specified in the application.
Parties served
Due to the nature of the application the following parties, at the minimum, will have to be served:
- Registrar of the High Court,
- The company that is targeted for placing under corporate rescue and is cited as a respondent,
- Master of the High Court, in his official capacity,
- Registrar of Companies, in his or her official capacity.
Founding affidavit
Applicant will be a deponent to a founding affidavit which will be filed together with the application. The salient features of the founding affidavit include the following:
Details of applicant
This will include applicant’s locus standi i.e. capacity at law to make the application, essentially as an affected person as defined in the Act.
Parties to the application
This is to address the parties to the application giving details of each party and why they are parties thereto either as co-applicants or as respondents. Their addresses are usually included therein.
Purpose of the application
The founding affidavit should make clear what is being sought in the application. It is essentially to place the target company, cited as a respondent, under corporate rescue in terms of section 124 of the Insolvency Act.
Nominated corporate rescue practitioner
It is standard and permissible practice to nominate a corporate rescue practitioner in the application.
Relevant background information
The application is better motivated by including relevant background information to bring context. Such information about the target company may include its business, legal status, business and financial situation, etc.
Specific requirements of the Act
It is necessary to satisfy the requirements of section 124(4)(a) of the Insolvency Act by demonstrating that in the founding affidavit.
Factors justifying corporate rescue include the following if there are reasonable prospects of rescuing the company:
- That the company is financially distressed, or
- The company has failed to pay over any account in terms of an obligation under or in terms of a public regulation or contract with respect to employment related matters, or
- It is just and equitable to do so for financial reasons.
Section 121 of the Insolvency Act stipulates that a company is financially distressed if:
- It appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months, or
- It appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months.
To demonstrate factually that the company is financial distress an applicant has to adduce evidence to that effect. For example this can be gleaned from how the company has been operating or conducting its financial affairs prior to the application, for example:
- Failing to pay creditors,
- Cessation, suspension or substantially reduced operations.
Company can be turned around
Applicant has to persuade the Court that the target company can be turned around. He or she can demonstrate this through:
- Offering solutions to the factors that led the company into its current situation of financial distress.
- Basing on the assessment done by the nominated corporate rescue practitioner covering how the corporate rescue practitioner can trade the company out of its current difficulties, for example through raising working capital, bringing on board a new investor through the issue of new shares in exchange for capital injection, joint venture or a tribute arrangement in the case of a mining companies.
Draft order
The draft order may be couched such that, if the Court is satisfied or agreeable, it may order that:
- XYX (Private) Limited be and is hereby placed under corporate rescue in terms of section 124 and 121 of the Insolvency Act (Chapter 6:07).
- P. Practitioner is hereby appointed the interim Corporate Rescue Practitioner of XYZ (Private) Limited.
Attachments
Key attachments include list of creditors, financial reports, operational reports, letter confirming acceptance of nomination by a corporate rescue practitioner, corporate rescue practitioner’s current practising certificate or any other relevant documents.
Conclusion
A corporate rescue application has to be done properly to avoid being reversed on a technicality as I will explained in future articles, especially standard notice in section 124(2).
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), CA(Z), MBA (EBS, UK) is a legal practitioner / conveyancer, chartered accountant, corporate rescue practitioner, registered tax accountant, consultant in deal structuring and business valuer. He is also a director with Investacare International (Private) Limited. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
