PODCAST | Business rescue or last-ditch defence? When the process comes too late

In many cases, by the time business rescue is considered, the business can no longer be rescued. In this edition of Business Law Focus, host Evan Pickworth interviews Dr Eric Levenstein, director and head of insolvency & business rescue at Werksmans, about the misuse of the process and practical steps to ensure it is used more appropriately as a mechanism for intervention rather than reaction.

Central to the entire rescue framework is the requirement of a “reasonable prospect of rescue”. This is a substantive threshold. It requires a credible, supportable basis for the company’s rehabilitation, whether through operational restructuring, the introduction of new capital, or a compromise with creditors. It is not satisfied by mere hope that conditions might improve.

In the current economic environment, that threshold is increasingly difficult to meet. South African businesses are under sustained pressure: elevated interest rates, constrained demand, rising input costs and ongoing infrastructure challenges. In this context, financial distress is often prolonged rather than sudden. Businesses absorb pressure for as long as possible, drawing on facilities, extending creditor terms and reducing internal buffers, while the inevitable looms.

By the time formal proceedings are considered, the position has often deteriorated significantly. Business rescue is therefore frequently initiated not as part of a restructuring strategy but as a response to imminent liquidation.

The immediate function becomes the moratorium — a means of halting enforcement action and stabilising the position.

A critical element is often missing: a realistic route to rehabilitation

“Business rescue is too often positioned as a last line of defence. In doing so, it is expected to resolve circumstances that have already progressed beyond the point at which meaningful and successful intervention is possible. The question is not whether business rescue works. The statutory framework is clear, and where properly applied, it is effective. The question is whether it is being used in the way contemplated by Chapter 6,” says Levenstein.

“When business rescue is deployed as a defence to liquidation, or to frustrate creditors rather than as a considered restructuring mechanism, its prospects of success are inherently limited. In that sense, many business rescues do not fail because the process is flawed. They fail because, by the time they begin, the outcome is already largely determined,” he concludes.