Written by: Michael Owen
While South Africa’s construction industry showed a glimpse of its full potential during the run-up to the 2010 Soccer World Cup, there has been a shortage of major construction developments ever since. But when South Africa entered its national lockdown on 26 March 2020, it brought our country’s already struggling economy to a halt and one of the hardest hit sectors was the labour-intensive construction industry.
Considering the country’s contracting economy, rising material costs, decreased government spending in the industry, and the COVID-19 pandemic, it is no wonder that the industry has been shedding tens of thousands of jobs. It is not all doom and gloom, however.
A COVID-19 response team was formed in April 2020, the Construction COVID-19 Rapid Response Task Team, which was geared towards co-ordinating an industry response to the COVID-19 pandemic, including the safe reactivation of construction sites as lockdown restrictions were eased. In June 2020, the government also announced a 10-year R 2.3 trillion infrastructure investment plan to help our economy weather the crisis by investing in various infrastructure sectors. An Economic Reconstruction and Recovery Plan was rolled out in October, worth R 1.1 trillion; its aim is to invest in infrastructure, expand energy generation capabilities, create jobs and spark industrial growth. In January 2021, South Africa’s construction industry formed a national umbrella body, the Construction Alliance South Africa (CASA), with the aim to facilitate smooth dialogue with government.
During this turbulent climate, Directors and stakeholders have the option of Business Rescue (BR), through which a company can attempt to remain solvent (or, if not possible, to obtain a more handsome return for the company’s creditors than the payment they would have received if the company had been liquidated) by restructuring its affairs. BR is described in section 128(1)(b) of the Companies Act 71 of 2008 (the Act) as “proceedings to facilitate the rehabilitation of a company that is financially distressed”.
Placing an entity under BR has inter alia, the following consequences:
- A Business Rescue Practitioner is appointed to steer the company towards a commercially viable position;
- Save for some exceptions, civil legal proceedings against the company are stayed until the completion of the BR period; and
- A restriction is placed on the disposal of company property.
In conclusion, as the COVID-19 pandemic continues to stifle economic growth in South Africa, many companies find themselves in a financially dire position where their only option is BR proceedings. Should your company be at such a point, the first step towards your company’s recovery is to consider BR proceedings under Chapter 6 of the Act, and then to contact our offices to assist you on your way forward.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).