You have delivered the goods, completed the work or paid a deposit. Then the customer or supplier announces that it has entered business rescue. The notice promises a turnaround, but you still need to know what happens to your money.
Business rescue in South Africa is a formal process under Chapter 6 of the Companies Act. It is designed to facilitate the rehabilitation of a financially distressed company where the legal requirements are met. It does not guarantee that the business will survive or that creditors will receive everything owed.
For a creditor, the immediate task is to establish whether proceedings have actually started, identify the practitioner and participate in the process. Ordinary collection steps may be affected, so acting on an old demand letter without checking the new position can be costly.
1. Business rescue is different from liquidation
Business rescue involves temporary supervision of the company, a framework restricting certain legal proceedings and the development of a rescue plan. The plan may aim to return the company to solvency or produce a better return for creditors or shareholders than immediate liquidation would provide.
Liquidation generally involves winding up the company and dealing with its assets and liabilities through a liquidator. A business rescue announcement should therefore not be described as proof that the company has already been liquidated.
See Chapter 6 of the Companies Act.
The distinction does not remove the financial risk. A company can enter rescue and later be liquidated. A plan can also leave a creditor receiving only part of the original claim. Read the actual documents rather than relying on the label to tell you the likely result.
2. Confirm that the process has started
A director saying “we are considering business rescue” is different from proceedings having commenced. Ask for the relevant notice or court order and the practitioner’s details.
Business rescue may begin through a board resolution that meets the statutory requirements or through a court application by an affected person. CIPC provides guidance on the commencement process and the required filings.
Check the company’s exact registered name and registration number. A trading name shared by several businesses can create confusion about which entity owes you and which entity is under rescue.
If you receive a notice by email, preserve the attachment and the date of receipt. Ask the practitioner to confirm your contact details for future notices. Do not assume that your salesperson or account manager will forward every document you need.
3. Understand the restriction on legal proceedings
Section 133 of the Companies Act creates a general moratorium on legal proceedings and enforcement action against the company, subject to exceptions and permitted routes. Written consent from the practitioner or leave of the court may be relevant, depending on the step proposed.
This does not mean every claim disappears. It changes how certain claims can be pursued while the proceedings are ongoing. A creditor who has already sued should inform their attorney immediately so the next procedural step can be assessed.
Do not seize property, change locks or recover equipment solely because an invoice remains unpaid. Ownership, possession, contractual terms and the rescue framework can all affect what is lawful.
If goods supplied under a reservation of ownership clause remain on site, provide the contract and delivery records to an adviser. The existence of that clause does not answer every question about immediate recovery during business rescue.
4. Submit a clear record of your claim
Ask the practitioner how claims are to be recorded and supported. Provide an accurate statement separating the amount owed before rescue from any later transaction.
Your file may include:
- The agreement, order or accepted quotation.
- Invoices and a reconciled statement of account.
- Delivery notes or proof of completed work.
- Correspondence acknowledging the debt or disputing part of it.
- Security documents or a personal guarantee.
- Relevant court papers if proceedings have already started.
Explain credits, returns and payments so the total can be checked. A practitioner should not need to guess whether an invoice has already been partly paid.
If the company disputes your performance, address the issue directly. Attach the relevant acceptance record or explain the unresolved dispute. A claimed amount and an accepted amount are not necessarily the same thing for participation and voting purposes.
5. Use your participation rights
Creditors are affected persons under the business rescue framework. The Act provides rights to receive relevant notices, participate in meetings and consider the proposed plan. Voting depends on the applicable rules and the recognised interests involved.
The practitioner does not simply act as your personal debt collector. Their role concerns the company and the statutory rescue process. You need to assess what the proposal means for your own position.
See CIPC’s explanation of business rescue.
Attend the meetings or arrange an appropriate representative. Read the documents beforehand and prepare specific questions. Asking how the forecast supports repayment is more useful than merely objecting that the company should have paid on time.
Keep notes of answers and request clarification where the plan refers to figures or assumptions that are not provided. If the amount at stake is substantial, obtain advice before exercising voting rights or agreeing to a compromise.
6. Read the proposed plan for the details that affect you
Look beyond an optimistic opening statement. The plan should explain how the company proposes to deal with its business, assets and liabilities within the statutory requirements.
For a supplier, important questions include the proposed payment amount, timing, conditions and comparison with the liquidation alternative. Identify whether payment depends on a future investment, sale or contract that has not yet materialised.
Consider a proposal offering payment in instalments after a new investor arrives. Ask whether the investor has made a binding commitment, what must happen first and what follows if the funding does not arrive. The practical risk lies in those details.
Read how disputed claims, security and existing contracts are treated. An adopted plan may bind creditors in accordance with the Act, including creditors who did not support it. Ignoring the vote does not necessarily leave you outside the eventual arrangement.
7. Treat new supplies as a separate decision
A company in rescue may ask you to keep supplying so it can trade through the difficulty. That request can be commercially sensible, but it exposes you to additional risk.
Before agreeing, identify who is authorising the order and how payment will be funded. Put the price, payment timing and responsibility in writing. Do not assume an ordinary employee can make every commitment needed during supervision.
Post commencement finance has its own statutory treatment. A new transaction should not be described as guaranteed merely because it takes place after rescue starts. The nature of the arrangement and available assets still matter.
Decide what your own business can afford. A small supplier can be seriously affected by extending further credit to protect an existing balance. Request advice where the proposed arrangement relies on priority, security or a promise that you will be paid ahead of others.
8. Check guarantees and related entities separately
A company’s rescue does not automatically answer what happens to a director’s personal guarantee, a suretyship or a debt owed by another company in the group. Each document and legal relationship must be examined.
Do not assume directors are personally liable simply because the company has not paid. Equally, do not assume a valid guarantee has become worthless because the principal debtor entered rescue. Its wording and the applicable legal position matter.
Give your attorney the signed documents rather than a summary saying “the owner promised to pay”. A personal assurance in a conversation is different from a properly documented undertaking whose legal effect can be established.
Stay involved while managing your own cash flow
Business rescue creates a structured opportunity to address financial distress. Your best practical response is to establish the status, record the claim, participate and assess new commitments carefully.
While the process unfolds, revise your own cash flow assumptions. A proposed payment is not the same as money received. Keeping the legal process and your business planning aligned can help prevent another company’s distress from becoming your own.
