You could lose your shirt trying to rescue your company - IOL

In a November 2025 presentation to Parliament, the Industrial Development Corporation identified high costs of as much as R10 million, lengthy proceedings and companies entering rescue too late as significant obstacles.

A record 48 South African companies entered business rescue in February, but for small business owners who have invested their savings in their companies, attempting to save a struggling business can come at a considerable financial cost.

Research prepared for the Turnaround Management Association Southern Africa (TMA-SA), based on an analysis of 4,373 Companies and Intellectual Property Commission (CIPC) proceedings, showed that 1,409 companies were in business rescue as at March 2026.

For owners who have personally funded their businesses or signed surety for company debts, the consequences can extend beyond losing their original investment.

Business rescue is a legal process under the Companies Act intended to give financially distressed companies an opportunity to restructure their affairs rather than proceed directly to liquidation.

A licensed practitioner temporarily supervises the company, certain legal proceedings against it are suspended, and a plan is developed to address its financial difficulties.

The aim is either to restore the business to solvency or secure a better return for creditors and shareholders than immediate liquidation would have achieved.

A recent Supreme Court of Appeal judgment involving Ubuntu Family Health Centre illustrates this limitation. The company entered business rescue in November 2023, after Capitec had cancelled its finance agreement for a Porsche 911.

Capitec sought to recover the vehicle, and the Supreme Court of Appeal found that the business-rescue moratorium did not prevent the bank from reclaiming property that Ubuntu was unlawfully possessing. Ubuntu was ultimately liquidated on 24 May 2024.

For smaller businesses, the principle extends beyond luxury vehicles. Losing access to financed equipment or vehicles could undermine an attempt to continue trading.

Successful rescues take an average of 18 months to complete, while companies that ultimately fail spend more than a year in the process before ending in liquidation.

You should not have to wait until your company is insolvent.

Under the Companies Act, a company is financially distressed if it appears reasonably unlikely to pay its debts as they fall due within the next six months, or reasonably likely to become insolvent during that period.

Warning signs include persistent cash-flow shortages, difficulty paying suppliers or employees, mounting debt and an inability to secure additional funding.

The board can initiate voluntary business rescue if it reasonably believes the company is financially distressed and there is a reasonable prospect of rescuing it.

An affected person, including a creditor, employee or shareholder, can alternatively apply to court to place the company under supervision.

Business rescue is not free, and the practitioner's remuneration is only one expense.

For a small company, the prescribed basic practitioner tariff is capped at R1,250 an hour or R15,625 a day, inclusive of VAT, the Companies Act states. Reasonable expenses and certain approved additional remuneration may also apply.

The business must also fund its ongoing operations, potentially including employees, suppliers, legal assistance and restructuring costs. This creates a particular challenge for SMEs that are already struggling to meet their obligations.

In a November 2025 presentation to Parliament, the Industrial Development Corporation identified high costs of as much as R10 million, lengthy proceedings and companies entering rescue too late as significant obstacles.

It recommended introducing a rescue regime specifically tailored to SMEs to reduce costs, alongside early-warning measures to identify financially distressed businesses.

In a June 2025 judgment, the Pretoria High Court set aside the business rescue of Seacrest Investments, a company with no employees, income or operating business, after its practitioner received more than R2.2 million in remuneration.

The company's sole property had been sold for R3.4 million. The court found that the rescue had been initiated in bad faith and ordered the practitioner and company director, along with the company, to pay punitive legal costs.

Where a practitioner concludes that there is no reasonable prospect of rescuing a company, the Companies Act requires an application to court to discontinue proceedings and place it in liquidation.

A company generally has a legal identity separate from its shareholders, meaning owners do not automatically become personally liable for all company debts when it enters business rescue.

However, this does not mean their personal finances are protected. An owner who signed personal surety for a company loan may still face claims under that agreement, while money personally advanced to the company may be at risk.

Someone who owns 100% of a company could also lose their entire shareholding if the business is eventually liquidated without sufficient assets to meet its obligations.

Business rescue does not automatically release personal guarantees or protect the owner's investment.

TMA-SA's research suggests that two in three companies entering business rescue return to operation, preserving 87% of their economic value. However, the IDC's November presentation placed the overall success rate at between 12% and 15%.

TMA-SA director Stefan Steyn, who conducted its research, warned that rescue was neither quick nor guaranteed.

"Successful rescues take an average of 18 months to complete, while companies that ultimately fail spend more than a year in the process before ending in liquidation. That raises important questions about whether some businesses are entering rescue too late or remaining in the process without realistic prospects of recovery."

Where a practitioner concludes that there is no reasonable prospect of rescuing a company, the Companies Act requires an application to court to discontinue proceedings and place it in liquidation.

For SME owners, business rescue therefore requires more than identifying a way to postpone creditors' claims. It requires a viable business, sufficient funding to continue operating and a realistic prospect of implementing a rescue plan.