Business rescue replacing judicial management: An assessment of the extent of problems solved

The South African Companies Act 46 of 1926 introduced judicial management as a statutory corporate rescue procedure for companies to be used before liquidation, where appropriate. It was retained in the South African Companies Act 61 of 1973, even though the Master of the then Supreme Court recommended its abolishment. Several studies identified different problems and deficiencies and advocated reform, either in the form of a change in current judicial management legislation or through completely new legislation. The Department of Trade and Industry therefore issued a guideline for corporate reform in 2004 in which it proposed a debtor-friendly business rescue regime to replace the creditor-friendly judicial management regime. The ensuing Companies Bill detailing the business rescue provisions was issued in 2007.Acceptance of so far-reaching a change as that from a creditor-friendly to a debtor-friendly regime requires that one be convinced that the problems and deficiencies of the old regime are solved by the replacing regime. This study was therefore undertaken to assess the extent to which the problems and deficiencies of judicial management will be addressed by the proposed business rescue provisions. The assessment was made through a first-time documentation, from current literature, of a comprehensive list of the main problems and deficiencies that have caused judicial management to fail. The business rescue provisions of the Companies Bill were then examined to assess the extent to which the identified problems and deficiencies of judicial management have been addressed. Finally, recommendations for further improvement were made where applicable.The assessment found that only some problems and deficiencies related to judicial management have been addressed. The areas of concern were found to be the lack of specialised courts, the lack of the proper qualifications and regulation of supervisors, remaining conflicts of interest and the exclusion of non-company business entities from the business rescue regime. The study further provided insight and background knowledge concerning new legislation and shed light on the development of a new profession in South Africa, that of the turnaround practitioner.