Com Law 12

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Why is there incentive to rehabilitate an over-indebted company?
Lots of stakeholders will be affected if company goes under eg.shareholders, employees, suppliers
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What is the aim of BR?
To increase the probability of the company remaining solvent - if not at least creditors should get better return after BR even if business still becomes insolvent
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What does business rescue entail?
The temporary supervision of the company, a temporary moratorium on the rights of creditors, and and BR plan developed and implemented
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What does the business rescue plan dictate?
How the company will generate finance during the BR
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Why is the company supervised during BR?
Directors are at fault but they know the company well - they can't continue supervising but a BR practioner will aid them
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When is a company financially distressed?
Its reasonably unlikely the company will be able to pay all it's debts as they become due within the next 6 months (commercial insolvency) OR its reasonably likely the company will become insolvent within the next 6 months (factual insolvency)
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What are the two ways for business rescue to begin?
Resolution by board or a court order
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Who can file a court order?
Can apply on its own initiative or application by "affected person"
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Who are affected persons?
SH's, creditors, employees, and trade unions representing employees
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Requirements for commencement of BR by board resolution?
Board must have reasonable grounds to believe the company is financially distressed and there's a reasonable chance of rescue (and liquidation proceedings haven't been initiated)
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Procedures to follow for BR by board resolution?
Must give notice to the Commission and the employees, must appoint a BRP and must organise a first meeting of creditors
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Who, what and when must the company notify after filing the resolution?
Within 5 working days of filing they must notify every affected person of the resolution, the date it became effective, and the grounds it was based on
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What happens if company doesn't notify affected persons after filing the resolution?
The business rescue resolution lapses and is a nullity
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When does the BR resolution become effective?
Once its been filed (delivered to) the CIPC
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When can an affected person ask the court to object the board resolution?
If there's no reasonable grounds to believe the company is distressed or that rescue is probable, or the company hasn't followed proper procedure
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What must an affected person show in order for commencement by court order?
Company is fin distressed OR company has failed to pay amt in respect of public obligation or employment related matters OR its just and equitable to do so for financial reasons (and has to be reasonable prospect of rescue)
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Can the court order BR on its own initiative if liquidation proceedings have begun?
Yes - unlike with board resolution
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Who grants BR practitioner licenses?
The Commisioner
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What professions must you be in order to become a practitioner?
Legal, accounting or business management
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Can you be a practitioner if you would be disqualified from acting as director of a company?
No
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Can a person already have a relationship with the company if they're to become their practitioner?
Can't have a relationship that would lead a reasonable, informed 3rd party to believe the integrity or objectivity of said person is compromised
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Who appoints the practitioner?
The company if BR commenced by board resolution OR affected person who obtained BR order
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What kind of duties does the practitioner have?
Fiduciary ones
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What kind of powers does the practitioner have?
1. Full management control inc. power to delegate 2. Remove/replace/appoint directors 3. Suspend contractual obligations that the company was party to at commencement, that would become due during business rescue; or apply to court to cancel them
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Does the practitioner receive remuneration?
Yes- entitled to pmt by the company in accordance with a tariff prescribed by the Minister BUT may enter into agreement with company to be paid an additional fee if BR is successful
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Can the practitioner cancel all contracts?
Not employment ones
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Steps one and two of BR procedure?
Investigation of affairs AND development and approval of business rescue plan
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When will a proposed business plan be approved?
If supported by the holders of more than 75% of the creditors’ voting interests AND the votes in support of the proposed plan included at least 50% of the independent creditors’ voting interests
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What happens if the creditors reject the plan at the first meeting?
Practitioner needs to develop a revised plan and present that plan at the 2nd meeting
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What happens if the creditor reject the plan again at the second meeting?
BR fails and creditors can sue to claim their debt
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What are the exceptions to the general moratorium on legal proceedings?
1. W/ written consent of supervisor 2. W/ the leave of the court 3. As a set off against claim made by the company in legal proceedings 4. Criminal proceedings against company/directors 5. Legal proc concerning any property company is trustee for
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Can directors make transactions during BR?
Needs to approved by supervisor
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When will a director be held personally liable to the company for losses sustained as a consequence of their actions during BR?
If they act on behalf of the company knowing they have no auth to do so OR continue carrying on business in a prohibited manner OR being party to act/omission intended to defraud stakeholders
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When would a director be removed during BR?
If they fail to comply with provisions regulating their actions during BR OR hinder the BRP in the performance of his/her duties
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Are employees automatically fired when BR commences?
No - don't get voting rights but are creditors to the extent of any amounts (salaries) owed to them and they rank highly on the list of creditors - if fired because of BR must follow relevant labour laws
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When must the practitioner convene a meeting of creditors to inform them of the company’s future, and to allow them to prove their claims?
Within 10 days of his or her appointment
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Do creditors have voting rights?
Yes - each creditor has a voting interest equal to the full value of his or her claim against the company – irrespective of whether the claim is secured or unsecured
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What do creditors vote on?
The amendment, approval or rejection of the business rescue plan.
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When is BR terminated?
1. Court sets aside commencement resolution or converts BR to liquidation proceedings OR BRP files a notice of termination OR BR plan has been proposed and rejected or adopted & the practitioner has filed a notice of substantial implementation
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What is a compromise with creditors?
An agreement between a company and its creditors in terms of which the creditors agree to accept less than their full claims
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Who may propose a compromise with creditors?
The BoD OR the liquidator of the company (if being wound up)
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Does a compromise have to be for all of creditors?
No - can be for all creditors or for all members of a class of creditors
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When can compromise occur?
Any time - company doesn't have to be financially distressed
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How does a compromise occur?
By delivering a copy of the proposal and notice of a meeting to consider the proposal
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Who does the copy of proposal and notice of meeting need to be delivered to?
Every creditor or every member of the relevant class of creditor who's name and address is known to or can easily be obtained by the company AND the commission
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What are the two ways the proposal can be approved?
Creditors approval OR court approval
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What does the creditors approval require?
If supported by a majority in number, representing at least 75% in value of the creditors or class voting in person or by proxy at the meeting (no quorum though ie. small number of people at meeting is still binding)
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What does the court approval require?
Company may apply to court for an order approving the proposal - court will grant it if its just and equitable to do so (if approved proposal is binding from date of filing)
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What is winding up?
The process of selling all the assets of a business, paying off creditors, distributing any remaining assets to the partners or shareholders and then dissolving the business.
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What is voluntary winding up?
Winding up triggered by company or by shareholders special resolution - company may or may not be insolvent
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What is court ordered winding up?
Occurs when a company is forced, by law and usually by a court order, to appoint a liquidator, sell off its assets and distribute the proceeds to its creditors - company’s creditors often trigger the process when they are unpaid and realise that the
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Recognised categories as basis for winding up a company?
Disappearance of company’s substratum OR illegal objects / fraudulent purpose OR deadlock in administration OR irretrievable destruction of relationships in a domestic company (‘quasi-partnership’)
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Who appoints the liquidator?
Appointed by Master once winding-up order is granted - usually nominated by creditors but Master may decline to appoint
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What are the powers of the liquidator?
Bring or defend legal proceedings + Settle with debtors + Compromise or admit claims against Co. + Carry on or discontinue business of Co. + Sell property of Co. + Approach court for leave to perform any act not expressly authorised
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What are the duties of the liquidator?
Recover all assets of Co. + Sell assets to satisfy creditors’ claims + Then distribute the balance to those legally entitled to it
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Other cards in this set

Card 2

Front

What is the aim of BR?

Back

To increase the probability of the company remaining solvent - if not at least creditors should get better return after BR even if business still becomes insolvent

Card 3

Front

What does business rescue entail?

Back

Preview of the front of card 3

Card 4

Front

What does the business rescue plan dictate?

Back

Preview of the front of card 4

Card 5

Front

Why is the company supervised during BR?

Back

Preview of the front of card 5
View more cards

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