With the disruptive environment faced by many South African companies increasing, liquidations are on the rise.
Mongezi Mpahlwa, Director of our Dispute Resolution practice joined Tumisang Ndlovu on Newzroom Afrika to discuss the need for business rescue to combat the extreme rise in liquidations.
Mongezi highlights that the current economy is facing significant challenges, with businesses globally experiencing financial distress, impacting both companies and consumers. When addressing businesses in distress, Mongezi explains the distinction between the roles of a liquidator and a business rescue practitioner. A liquidator is appointed to wind up a company’s affairs, taking possession of assets and disposing of them to benefit creditors. On the other hand, a business rescue practitioner plays a crucial role in providing the company with breathing room, a period of respite, enabling it to restructure and return to solvency, thereby reassuring the audience about the process.
Mongezi clarifies that liquidation occurs when a company is insolvent, unable to meet its debts, or when winding up is deemed equitable, such as in cases of irreconcilable deadlock among directors. In contrast, business rescue holds the promise of a potential turnaround for companies that are potentially salvageable, aiming to restructure them and return them to solvency, thereby instilling hope in the face of financial distress.
However, Mongezi notes that business rescue may ultimately result in liquidation. For instance, if the practitioner determines that the company has no reasonable prospects for rescue, they must seek court approval to discontinue the rescue process and initiate liquidation. Additionally, if the grounds for believing in the company’s rescue become obsolete, the practitioner must notify the court and all affected parties, filing a termination notice.
Mongezi Mpahlwa is a Director at CDH.
