Buying from a company in business rescue: who can sell, and what to check

What business rescue is, and why it matters to a buyer

Business rescue is the process in Chapter 6 of the Companies Act 71 of 2008 for a company that is financially distressed: reasonably unlikely to pay all its debts as they fall due, or reasonably likely to become insolvent, within the next six months (section 128(1)(f) of the Companies Act, in force since 1 May 2011). It begins when the board's resolution is filed with the Companies and Intellectual Property Commission (CIPC), when an affected person applies to court for an order, or when a court makes one during liquidation proceedings or proceedings to enforce a security interest (section 132(1)). The aim is to keep the company going or, failing that, a better return for creditors or shareholders than immediate liquidation (section 128(1)(b)).

For a buyer, three things follow:

• The practitioner is in charge. The practitioner runs the company in place of the board (section 140(1)(a)), and a director's act needing the practitioner's approval is void without it (section 137(4)).
• The practitioner must be licensed. Only a CIPC-licensed person who meets section 138(1) may be appointed; the appointment is filed on form CoR123.2 (CIPC filing requirements).
• A board's rescue can lapse. If the company does not appoint the practitioner within five business days of filing the resolution (or longer if CIPC allows) and file the appointment within two business days, the resolution lapses and is a nullity (section 129(3) to (5) of the Companies Act, in force since 1 May 2011).

The three ways a company in rescue may sell

During business rescue the company may dispose of property, or agree to, only (section 134(1)(a)):

1. in the ordinary course of its business;
2. in a bona fide transaction at arm's length for fair value, approved in advance and in writing by the practitioner; or
3. in a transaction contemplated in, and undertaken as part of implementing, a business rescue plan approved under section 152.

Beyond ordinary trading stock, a building, a fleet, a production line or the business itself needs the second or third route: before you sign, get the practitioner's written approval, dated before the agreement, or the plan clause that provides for the sale.

The second route needs no creditors' vote, but it needs a fair price at arm's length. If you are a director or shareholder, or related to one, take legal advice before you bid. An open, competitive auction gives evidence of market value.

Secured, financed and leased assets

If another person holds any security or title interest in an asset, the company must first get that person's consent, unless the proceeds will settle the debt it secures in full, and must then promptly pay that person the proceeds, up to the debt, or secure them (section 134(3)). Look for:

• Mortgage bonds over land and buildings.
• Special notarial bonds over specified equipment, treated as a pledge to the lender once registered (section 1(1) of the Security by Means of Movable Property Act 57 of 1993).
• Instalment sales and leases on vehicles, plant and IT. An instalment sale commonly leaves ownership with the financier until the last payment, as it did in Cloete Murray NO v FirstRand Bank, a 2015 Supreme Court of Appeal case.
• Rights the company has granted over its own assets, such as a lease of land or surface rights.
• Other people's goods, such as consignment stock.

A conveyancer can search the Deeds Office for bonds, and a vehicle's registration certificate shows its title holder (see buying a vehicle on auction). Get each secured creditor's and financier's written consent or release. Where a financier still owns an asset, get its release, or have the price paid to it on transfer, whatever the debt: section 134(3) only obliges the company to pay promptly, so ask your attorney when ownership passes to you.

The moratorium: what it protects, and what it does not

While business rescue runs, no legal proceeding, including enforcement action, against the company or in relation to property it owns or lawfully possesses may be started or continued without the practitioner's written consent or the court's leave, subject to listed exceptions (section 133(1)). Nobody may exercise any right over property in the company's lawful possession, whoever owns it, without the practitioner's written consent (section 134(1)(c)).

So, without that consent or leave, a creditor cannot have the sheriff attach the assets you are negotiating for. A creditor may still cancel a contract for breach: cancellation is not "enforcement action" (Cloete Murray, paras 31 to 33). Once a financier validly cancels, the company's possession may no longer be lawful, and then the moratorium may not stop the owner recovering the goods (Timasani v Afrimat, para 34). The practitioner can, however, suspend the company's obligations under the agreement (section 136(2)(a); Cloete Murray, para 35(a)).

Buying under the business rescue plan

The plan must be published within 25 business days of the practitioner's appointment, unless more time is allowed, and put to creditors within 10 business days after that (sections 150(5) and 151(1) of the Companies Act, in force since 1 May 2011; CIPC Practice Notice 3 of 2024).

For a buyer, the plan is the document to read first. It must list the material assets and which were held as security, the creditors, the conditions for the plan to take effect, its effect on employees, and projections for the next three years (section 150(2) of the Companies Act, in force since 1 May 2011).

The plan is approved on a preliminary basis if supported by more than 75% of the creditors' voting interests voted, including at least 50% of the independent creditors' voting interests voted (section 152(2) of the Companies Act, in force since 1 May 2011), and by any class of shareholders whose rights it alters (section 152(3)(c)). If the vote fails, the plan can be revised, the vote challenged in court as inappropriate, or the opposing votes bought out (section 153). An adopted plan binds the company, every creditor and every shareholder, however they voted (section 152(4)).

A plan can also give you control of the company: to implement it, the practitioner may issue authorised shares at a price the practitioner sets (section 152(6)). During rescue, a change in the status of issued shares, other than by an ordinary-course transfer, is invalid unless a court directs otherwise or an approved plan provides for it (section 137(1)), so ask your attorney before buying shares from existing shareholders.

Section 34 of the Insolvency Act can make an unadvertised transfer of a trader's business void against its creditors. In 2024 the High Court in Johannesburg held that creditors can contract out of it through the business rescue plan and, in the alternative, that it does not apply in business rescue at all (Reiscor Two v Anheuser-Busch InBev Africa, paras 76 to 85). That is one High Court judgment: ask your attorney whether to publish the notice anyway, especially for a sale outside a plan.

Staff, contracts, tax and other approvals

• Employees. During rescue, staff keep the same terms apart from attrition or terms agreed under labour law, and retrenchments in the plan are subject to sections 189 and 189A of the Labour Relations Act (section 136(1)). On a going concern transfer, section 197 of that Act moves the staff to the buyer with the rights and obligations owed to them, and makes seller and buyer jointly and severally liable for earlier employment claims (section 197(2) and (9)). Under section 197A (an insolvent seller, or a compromise to avoid winding-up) the staff still move, but the seller keeps those rights and obligations. A written agreement under section 197(6) can vary either (Labour Relations Amendment Act 12 of 2002). Take labour advice on which applies before you price the deal.
• Contracts and licences. For the rescue, the practitioner may suspend the company's obligations under pre-rescue agreements that would fall due during it (not employment contracts or certain financial agreements), or urgently ask a court to cancel them (section 136(2) and (2A)). Check that each contract, lease and licence you rely on is in force and can pass to you (see the due diligence checklist and going concern sales).
• Competition approval. A merger that meets the Competition Commission's thresholds must be approved before it is implemented, and a smaller one can be called in within six months after implementation (sections 13A(3) and 13(3) of the Competition Act, in force since 1 February 2001).
• VAT and transfer duty. A going concern sale is zero-rated only if every requirement of section 11(1)(e) of the VAT Act is met (SARS Interpretation Note 57), and property attracts VAT or transfer duty, never both (SARS; see transfer duty).

Protecting your deposit, and if the rescue fails

In Timasani v Afrimat Iron Ore, a practitioner selling a mining company's farm and equipment under an adopted plan accepted an offer subject to a due diligence and final agreements, with the deposit in a separate interest-bearing account of the company, held on the buyer's behalf. The deal stalled over the auctioneer's commission and costs payable on top of the price, and a lease over the farm the buyer said its due diligence had not shown (paras 5 to 11). The Supreme Court of Appeal held that the deposit was neither the company's property nor lawfully in its possession, so the moratorium did not bar the buyer's claim (paras 31 to 35). Even so, the buyer had to bring a High Court application and defend the company's appeal, dismissed on 13 April 2021, to recover a deposit paid on 29 March 2017.

In a private sale, agree in writing where your deposit is held, for whom and when it is refunded, with a long-stop date for every condition, and every amount payable on top of the price. At an auction the conditions of sale fix the deposit: read where it is held and when it is refunded before you register, and ask the auctioneer if they do not say.

If the practitioner concludes there is no reasonable prospect of rescue, they must apply for the company's liquidation (section 141(2)(a)): ask your attorney how your agreement deals with that. Apart from a director's duties and liabilities, the practitioner is not liable for acts in good faith but can be held liable for gross negligence (section 140(3)), so rely on your own inspection rather than assurances.

Business rescue or liquidation: what changes for a buyer

An affected person's court application starts a rescue (section 132(1)(b)), and a court can move a company from liquidation into business rescue (section 131(7)), so check its status on the day you sign.

Before you bid or sign: a checklist

1. The resolution or court order, and whether any rescue or liquidation application is pending.
2. The practitioner's licence, and proof the appointment was made and filed in time (section 129(3) to (5)).
3. The section 134(1)(a) route: the written approval or the plan clause.
4. Every bond, instalment sale, lease and right over the assets: a Deeds Office search, registration certificates, and the section 134(3) consents or releases.
5. The plan, if there is one: adopted, and its conditions met?
6. Contracts, leases and licences still in force.
7. The deposit terms, and every amount payable on top of the price.
8. Labour advice (sections 136, 197 and 197A), VAT, competition approval and your attorney's sign-off.

Buying through Dynamic

Businesses and assets of companies in business rescue are offered through us by auction with a reserve or by private treaty: going concerns through Dynamic Business Sales (see businesses for sale), and property, vehicles, plant and contents through our estates desk and upcoming auctions (private treaty for property runs through Dynamic Real Estate). Before anything is marketed we take a signed mandate confirming the seller's entitlement to sell (see selling on auction). Ask to see the approval or plan clause behind a lot before you bid.

Business buyers, wherever they are, sign a non-disclosure agreement before receiving the information pack and show proof of funds before seeing the books (international buyers). Bidders register and complete FICA verification before bidding opens (buying on auction; how to register and bid online). Each auction's conditions of sale set the deposit, any buyer's commission and the payment period, and say what is sold and in what condition: read them before you bid (voetstoots explained).