When a business faces serious financial difficulty, the instinct is often to wait and hope the situation resolves itself. The Companies (Amendment) Act 2024 introduces a more structured framework for companies seeking to restructure their debts, giving distressed companies better tools to survive rather than simply collapse.

A key change is to the restraining order mechanism under Section 368. A restraining order protects a company from creditor action, winding-up proceedings, enforcement of securities, and repossession while it works out a compromise with creditors. Under the amended law, the moment an application for a restraining order is filed, automatic interim protection applies for up to two months while the Court decides on the application. Previously, a company had no protection during this waiting period.

Two entirely new tools have been added. The first is the cram-down mechanism under new Section 368d. If 75 per cent in value of creditors agree to a restructuring plan, the Court may now bind all classes of creditors to the plan, including those who voted against it, provided the plan does not discriminate unfairly and is fair and equitable to dissenting creditors. This gives a restructuring plan a genuine chance of success even when some creditors refuse to cooperate.

The second is rescue financing priority under new Section 368b. When a company needs new funding to survive during restructuring, lenders are naturally reluctant to lend to a distressed business. The Court can now grant an order giving that rescue financing super priority status, meaning the rescue lender gets paid before other unsecured creditors if the company is eventually wound up. This makes it commercially viable for a lender to provide the lifeline financing a restructuring requires.

New Section 430a also protects companies from suppliers of essential services, including water, electricity, gas, IT, data storage, and website hosting, cutting off supply simply because the company enters restructuring. An insolvency-related clause in a supply contract cannot be triggered automatically for this reason alone.

If you wish to focus on running and growing your business, our CFO advisory team can take care of your accounting, payroll, and tax planning matters for you. Feel free to WhatsApp us at 010-246 2151.