What business rescue practitioners need to know about new regulations

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Business rescue, which was introduced in South Africa as an alternative to insolvency, came into effect via Chapter 6 of the Companies Act in 2011. Although relatively successful, business rescue has received criticism resulting from flaws in the process.

Currently, the Companies and Intellectual Property Commission (CIPC) has granted business rescue practitioners an individual licence. The CIPC has issued a Notice of a Transitional Period of Conditional Licences: from 1 October 2017, practitioners will be required to register through their various professional bodies, eg The Law Society of South Africa, South African Restructuring and Insolvency Practitioners Association (SARIPA), Chartered Institute of Management Accountants (CIMA), South African Institute of Chartered Accountants (SAICA), etc.

New legislation will require attorneys, accountants, liquidators and business management professionals who seek to practise as business rescue professionals to register via their SAQA-approved governing bodies. Moreover, these professional bodies will be required to apply for accreditation via CIPC, setting out that they comply with professional rules and disciplines in order to be able to accredit their own members.

Practitioners, as well as aspiring practitioners, are advised to belong to a legal, accounting or business management profession recognised by the South African Qualifications Authority (SAQA). Professional bodies have until 1 October to comply, after which no person will be licensed as a business rescue practitioner unless he/she belongs to the registered and accredited profession.

PJ Veldhuizen, CEO of Gillan and Veldhuizen, who is completing a doctorate on regulation of business rescue, has been instrumental in the restructure and regulation of business rescue in South Africa. According to Veldhuizen, in order to mitigate arbitrage or applicants opting for a less stringent accreditation process, standardisation of compliance is paramount. The CIPC board is finalising a Continued Professional Development programme that will require practitioners to complete a prescribed number of verifiable hours training by accredited trainers annually.

In support of the recent notice, Veldhuizen stresses, “The responsibility of business rescue practitioners is onerous. When appointed, they effectively take over the running of a stressed company and step into the shoes of the CEO/board of directors. They are also Officers of the Court and therefore have the fiduciary duty of a director – this certainly requires oversight.”

Veldhuizen also highlights the requirement that a company under business rescue needs to have a port of call in order to hold business rescue practitioners accountable. “Until now disgruntled parties were forced to turn to the courts for assistance, which can be a lengthy and expensive process. Business rescue practitioners will now be bound by a professional disciplinary code that will include a sanction to act on unethical conduct or inappropriate behaviour.”