Law to 'rescue' struggling firms

Cape Town - Financial institutions lending large sums of money to businesses will have to become well acquainted with provisions in the new Companies Act dealing with firms in financial crisis. The new legislation comes into force in April 2010.

Money lenders such as these could find themselves in hot water if they fail to realise in good time that for six months they can be prevented from instituting any claims against struggling companies.

The warning comes from company law expert Jabu Thobela at Gauteng firm Deneys Reitz.

The new Companies Act has already been accepted into law, but is waiting for an announcement by President Jacob Zuma as to the date of implementation.

As soon as it is in force, Chapter 6 of the new act determines that any company in financial crisis may, by means of a board decision, arrange for the company to make use of the so-called business rescue plan in the act, says Thobela.

This would set in motion procedures aimed at rehabilitating such a company.

This is bad news for the company's creditors.

The act stipulates that no creditor of the company may without the permission of a court institute a claim against the company concerned for a period of six months following the board's decision.

"Creditors would normally hear of such a board decision only once the decision has been taken. It would then be too late.

"The list will require creditors to be much more observant and regularly monitor companies to which they grant credit.

"Any claims they might want to institute against the company will have to be initiated before the board opts for a lifeboat in terms of the act.?

- Sake24.com

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