LML4806
Assignment 2 Semester 1 2023
Unique Number:
Question: 1
Coffee Bean Lovers (Pty) Ltd (‘the company’) buys coffee from Kenya and
distributes it to different coffee shops in South Africa. Due to an infestation of
bugs at one of the coffee plantations, the company will not be able to get
deliveries of coffee from Kenya for the next three months. Instead, the company
will have to import coffee from Uganda at a much higher cost. As a result, the
company’s cash flow will be affected severely. Pat, one of the directors of Coffee
Bean Lovers (Pty) Ltd, has informed Jane and Steven, two of the employees of
the company, that the company may face serious financial difficulties in the next
three to twelve months and that they will not be paid their salaries for the next
two months as the company will first have to pay other creditors.
Jane and Steven have heard about business rescue, and are of the view that
business rescue proceedings may be appropriate in the circumstances to assist
the company to survive and to ensure that they will still be paid their salaries.
Jane and Steven approach you for advice on business rescue proceedings. With
reference to the relevant statutory provisions:
1.1 Explain what business rescue is and indicate the circumstances in which
business rescue proceedings may be used. (5)
Section 128(1)(b) of the Companies Act 71 of 2008 provides a definition of business
rescue as the legal process aimed at aiding the recovery of a firm facing financial crisis
by:
, o The interim oversight of the corporation and the administration of its operations,
commercial activities, and assets.
o An interim suspension of the legal entitlements of individuals making claims against
the firm or its assets under its control.
o The proposal aims to create and execute a plan, subject to approval, to save the
firm. Alternatively, if saving the company is not feasible, the proposal aims to
construct a plan that would provide the company's creditors with a higher return
than they would have gotten if the company had been liquidated immediately.
Instances when business rescue may be used
• According to section 128(1)(f) of the Companies Act 71 of 2008, a business would
be considered financially distressed if:
o The corporation is very improbable to be capable of paying all of its outstanding
obligations over the next six months.
o The corporation is very probable to experience insolvency inside the next six
months.
1.2 Advise Jane and Steven how business rescue proceedings may be
commenced and indicate whether Jane and Steven, in their capacity as
employees, would have any means of ensuring that the business rescue
proceedings are commenced. (5)
According to section 129(1) of the Companies Act 71 of 2008, company rescue
procedures will begin If the board of the company determines, via a majority vote, that
the firm is facing financial hardship and there is a fair chance of rehabilitating it, they
may initiate business rescue procedures.
The procedures shall be deemed effective only upon the submission of the decision
to the Companies and Intellectual Property Commission.
The initiation of the proceedings may also occur by a court application in accordance
with section 131 of the Companies Act 71 of 2008.
Any individual impacted by the situation has the right to petition the court for an order
to initiate business rescue procedures and subject the firm to monitoring.
Assignment 2 Semester 1 2023
Unique Number:
Question: 1
Coffee Bean Lovers (Pty) Ltd (‘the company’) buys coffee from Kenya and
distributes it to different coffee shops in South Africa. Due to an infestation of
bugs at one of the coffee plantations, the company will not be able to get
deliveries of coffee from Kenya for the next three months. Instead, the company
will have to import coffee from Uganda at a much higher cost. As a result, the
company’s cash flow will be affected severely. Pat, one of the directors of Coffee
Bean Lovers (Pty) Ltd, has informed Jane and Steven, two of the employees of
the company, that the company may face serious financial difficulties in the next
three to twelve months and that they will not be paid their salaries for the next
two months as the company will first have to pay other creditors.
Jane and Steven have heard about business rescue, and are of the view that
business rescue proceedings may be appropriate in the circumstances to assist
the company to survive and to ensure that they will still be paid their salaries.
Jane and Steven approach you for advice on business rescue proceedings. With
reference to the relevant statutory provisions:
1.1 Explain what business rescue is and indicate the circumstances in which
business rescue proceedings may be used. (5)
Section 128(1)(b) of the Companies Act 71 of 2008 provides a definition of business
rescue as the legal process aimed at aiding the recovery of a firm facing financial crisis
by:
, o The interim oversight of the corporation and the administration of its operations,
commercial activities, and assets.
o An interim suspension of the legal entitlements of individuals making claims against
the firm or its assets under its control.
o The proposal aims to create and execute a plan, subject to approval, to save the
firm. Alternatively, if saving the company is not feasible, the proposal aims to
construct a plan that would provide the company's creditors with a higher return
than they would have gotten if the company had been liquidated immediately.
Instances when business rescue may be used
• According to section 128(1)(f) of the Companies Act 71 of 2008, a business would
be considered financially distressed if:
o The corporation is very improbable to be capable of paying all of its outstanding
obligations over the next six months.
o The corporation is very probable to experience insolvency inside the next six
months.
1.2 Advise Jane and Steven how business rescue proceedings may be
commenced and indicate whether Jane and Steven, in their capacity as
employees, would have any means of ensuring that the business rescue
proceedings are commenced. (5)
According to section 129(1) of the Companies Act 71 of 2008, company rescue
procedures will begin If the board of the company determines, via a majority vote, that
the firm is facing financial hardship and there is a fair chance of rehabilitating it, they
may initiate business rescue procedures.
The procedures shall be deemed effective only upon the submission of the decision
to the Companies and Intellectual Property Commission.
The initiation of the proceedings may also occur by a court application in accordance
with section 131 of the Companies Act 71 of 2008.
Any individual impacted by the situation has the right to petition the court for an order
to initiate business rescue procedures and subject the firm to monitoring.
