CIPC sees increase in business rescue applications

Companies across the board have felt the disruption that Covid-19 has had on trading conditions, according to Rory Voller of the Companies and Intellectual Property Commission (CIPC). 

Delivering a presentation on the CIPC’s contribution to the national Covid-19 response to a joint parliamentary committee meeting on Tuesday, the commissioner said there has been an increase in the number of companies applying for business rescue.

He said the CIPC has seen over 140 businesses go into business rescue during the current financial year, with 37 companies having applied for business rescue since the beginning of the first phase of South Africa’s lockdown in March.

“We have put additional staff and additional measures [in place] to deal with the increase in volumes [and the need to] examine those applications quickly because we need to deal with the timelines as well as the requirements as far as business rescue is concerned,” Voller told the meeting.

Business rescue proceedings have strict timelines related to aspects such as issuing a resolution with reasons why the company is financially distressed, appointing a rescue practitioner, holding meetings with stakeholders, and publishing a business rescue plan.

Among the more prominent companies that have gone into business rescue in this period are retailer Edcon, airline Comair and horse racing company Phumelela Gaming and Leisure.

Read:

Edcon to file for voluntary business rescue

Comair to file for voluntary business rescue

Horse-racing collapse takes Phumelela to the brink

“It’s across the board,” he said. “We have smaller companies and larger companies that are facing a particular crisis.”

Reckless trading provisions won’t be invoked

Voller said the CIPC had made the decision to not invoke reckless trading provisions against companies whose liquidity and solvency is compromised due to non-trading as a result of the national disaster caused by Covid-19.

The Companies Act requires that the CIPC investigate and issue companies that are trading recklessly with compliance notices requiring them to stop operations. However, under the current directive, a company going through liquidity issues will be able to continue operating as long as it states in its financial statements that Covid-19 was the cause.

“We are trying to assist companies and not be too draconian when it comes to the issue of them trying to recapitalise their businesses and for them trying to trade themselves out of the conditions [they are in],” said Voller.

Compliance breathing space

Companies are also required to lodge documents and conduct certain business under specific legal timeframes outlined in the Companies Act, the Intellectual Property Act and other laws.

However, Voller said the commission has declared the lockdown period and possibly even after lockdown as dies non (days that ‘do not count for legal purposes’). In other words, this period will not be seen as a time when legal work can be done as companies work to consolidate their positions, reporting and lodging applications related to various legislations to the CIPC.

CIPC offices have had limited operations due to the lockdown and have not been able to process all applications that have been made.

“For example, in the business rescue area, we have seen companies lodge business rescue applications during the course of the lockdown, [and] we have informed those particular companies that they will not be prejudiced due to the fact that we were not able to receive them,” said Voller.

He explained that the business rescue would have gone into force when they lodged the application, and not when the CIPC examined the application.