Considering the state of South Africa’s pre-pandemic economy, COVID-19 and the concomitant lock-down could arguably not have come at a worse time for businesses and individuals alike.
It is widely anticipated that we will soon see a slew of businesses and individuals who find themselves in very precarious financial positions – despite the South African Government instituting measures designed to assist through this time.
It is therefore crucial that businesses attempt to anticipate and ultimately weather the storm that they are facing and that they timeously adopt all measures and precautions available to them in order to prevail.
One of the potential options that should be considered is the application for government support including funding made available through:
Businesses should also investigate private sector support (as is available) for SMEs including the initiatives of:
It is also recommended that businesses approach their credit providers (banks/financiers) to negotiate any possible payment holidays or other indulgences and to determine whether they have credit insurance linked to finance arrangements.
In operating, businesses should always be cautions not to trade recklessly – meaning that they should be weary of carrying on business and continuing to incur debts when they have little chance of repaying creditors, as the consequence of doing so may lead to potential liability of directors/owners. In this vein, should it become necessary, companies should approach creditors and suppliers and ask for forbearance. It is however recommended that legal advice be sought before making any such appeals, in order to ensure that they are carefully phrased and do not lead to serious unintended consequences.
If appropriate and if the above general measures have not yielded sufficient results, a company may consider initiating Business Rescue by way of a resolution of the board of directors (in the case of being financially distressed and there being a reasonable prospect of recovery) of the company.
Business Rescue can assist a company as it will provide:
Further consequences of Business Rescue are that:
It is however important to note that should the resolution not be passed to initiate business rescue and the company continues to trade in circumstances that may put creditors at risk, it should make interested parties aware of its financial predicament – failing which the directors may possibly be held liable for creditor’s losses incurred as a result of the omission.
One must be mindful however that such notice may well lead to difficulties with suppliers and creditors who may themselves apply to court for the company to be placed under business rescue or apply for the company’s liquidation on the grounds that it is unable to pay its debts as they fall due. Should this occur, legal counsel should be sought without delay as the application may well be subject to challenge.
In circumstances where other measures are unable to assist the company, it could also consider voluntary liquidation but it is recommended that companies in distress take advantage of every mechanism available to them before facing financial disaster – such being briefly dealt with above.
For more information or advice, please contact:
Jason Clemens
Campbell Attorneys
031 5646494