Business
South African Courts Crack Down on Business Rescue Abuse: A Warning to Struggling Companies
Struggling businesses in South Africa are being put on notice: abusing business rescue laws to delay debt payments is no longer a safe escape route. Courts are now actively clamping down on this practice, with legal experts warning that dishonest filings could backfire—costing companies and their directors dearly.
The Rise of Business Rescue Misuse
Business rescue was introduced under South Africa’s Companies Act (2008) as an alternative to liquidation, allowing financially distressed companies to restructure and recover. However, some businesses have been exploiting the process—not to save their operations, but to stall creditors and avoid liquidation.
Legal experts from Webber Wentzel, including Julian Jones (Partner), Caellyn Eedes (Senior Associate), and Liso Potwana (Candidate Attorney), highlight a worrying trend: last-minute business rescue applications filed purely to delay court-ordered liquidations.
Courts Take a Stand
A recent Johannesburg High Court ruling reinforced a strict stance against such abuses. The case involved a company that:
- Repeatedly delayed liquidation proceedings
- Filed a business rescue application at the last minute
- Had no credible turnaround plan
The court ruled this was a cynical tactic, not a genuine rescue attempt, and allowed liquidation to proceed.
Crucially, the court relied on a 2024 Supreme Court of Appeal (SCA) decision, which stated:
“Business rescue applications made for ulterior motives do NOT automatically pause liquidation.”
This means: Courts can now dismiss sham filings and proceed with winding up a company immediately.
Key Legal Consequences
- No More Automatic Delays – Filing for business rescue no longer guarantees a pause in liquidation.
- Personal Liability for Abuse – In some cases, directors may face personal cost orders for abusing the process.
- Stronger Creditor Protections – Courts are prioritizing legitimate creditor claims over delaying tactics.
Why This Matters for Businesses
- Genuine rescues still possible – Companies with real recovery plans can still use business rescue effectively.
- Dishonest filings = high risk – Courts will scrutinize motives, and abuse could speed up liquidation.
- Directors beware – Those manipulating the system may face personal financial penalties.
Final Warning from Legal Experts
Webber Wentzel warns:
“This ruling sets a clear precedent—courts will not tolerate abuse of business rescue laws. Companies must act in good faith or face severe consequences.”
For struggling businesses, the message is clear: Use business rescue as intended, or risk losing everything faster.
{Source BusinessTech}
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