Business Rescue

Many companies that experience financial distress will consider the feasibility of business rescue as a means for a financial rehabilitation. But can it work?

- Raj Rajaram

Let’s be honest - the timing of the virus infection and the subsequent lockdown could not have been worse for South Africa. Our economy, already grappling with low Gross Domestic Product (GDP) growth and high levels of unemployment, suffered the simultaneous downgrading of credit ratings by Fitch and Moody’s. The combined impact of the COVID-19 lockdown and the rating agencies’ downgrades will cause many businesses in our economy to spiral into financial distress and shed thousands of jobs. Companies experience financial distress when they are unable to meet creditor payments, thereby increasing the possibility of insolvency.

Financial distress

When a company experiences financial distress, it can either be liquidated, undertake an informal turnaround or file for a legislated business rescue. The preferred route for a financially distressed company is to prevent a forced liquidation due to the detrimental impact that business closures and job losses have on our communities. Many companies that experience financial distress will consider the feasibility of business rescue as a means for a financial rehabilitation.