What Does "Reasonable Prospect
of Rescue" Actually Mean?

One of the key thresholds for commencing a voluntary Business Rescue is the board's belief that there is a "reasonable prospect" of rescuing the company. But what does this standard require in practice — and what are the consequences of getting it wrong?

The Statutory Threshold

Section 129(1) of the Companies Act 71 of 2008 provides that the board of a company may resolve to place the company under business rescue if the board has reasonable grounds to believe that the company is financially distressed and there appears to be a reasonable prospect of rescuing the company.

The "reasonable prospect" test is therefore a two-part enquiry: (1) is the company financially distressed? and (2) is there a reasonable prospect of rescuing it? Both conditions must be satisfied before the board can properly resolve to commence Business Rescue.

What is "Financial Distress"?

The Act defines financial distress with some precision. A company is financially distressed if, in the reasonably foreseeable future, the company is likely to be unable to pay its debts as they become due and payable (the liquidity test), or if it appears to be reasonably unlikely that the company will be able to pay all its debts as they become due and payable within the immediately ensuing six months (the solvency test).

Directors should note that this is a forward-looking assessment — it does not require the company to already be insolvent. A company that is currently meeting its obligations but whose cash flow projections show an inability to continue is financially distressed for the purposes of the Act.

What is a "Reasonable Prospect"?

The Act does not define "reasonable prospect." Our courts have however developed a body of jurisprudence on this question. The standard is not certainty — it is a prospect that is objectively reasonable. A mere hope or possibility is not enough, but the company does not need to demonstrate that rescue is more likely than not.

The courts have generally held that a reasonable prospect exists where there is a credible plan that, if implemented, offers a realistic chance of the company continuing as a going concern — or at least producing a better outcome for creditors than immediate liquidation. The "better than liquidation" standard is the minimum bar.

What if There is No Reasonable Prospect?

A board that resolves to commence Business Rescue without a genuine reasonable prospect of rescue faces serious consequences. The Act provides that an affected party — including any creditor — may apply to court to have the Business Rescue proceedings converted to liquidation if there is no reasonable prospect of rescuing the company.

Directors who file frivolously — for example, to delay creditor enforcement action — may also face personal liability and professional sanctions. A Business Rescue filing is not a shield against creditors: it is a statutory mechanism that must be used in good faith.

The Role of the BRP in Assessing Prospect

Before a Business Rescue Practitioner agrees to accept an appointment, they should conduct their own assessment of whether a reasonable prospect of rescue exists. A reputable BRP will not accept an appointment where there is clearly no prospect — both because the Act requires it and because accepting a hopeless rescue wastes creditor resources and harms the creditors the BRP is duty-bound to serve.

At MJBusiness Rescue, we offer a confidential pre-filing feasibility assessment that evaluates the reasonable prospect threshold, advises the board on whether filing is appropriate, and — if it is — begins the groundwork for a credible Business Rescue Plan from day one.