How does a business rescue practitioner get paid?

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BUSINESS NEWS - Business Rescue Practitioners (“BRP”) remuneration and disbursements have become a contentious issue in recent times. In this article I will endeavour to explain how the remuneration of a BRP is determined within a business rescue process.

Initially the remuneration of a BRP is agreed between the company and the BRP prior to the commencement of business rescue proceedings.

The BRP is entitled to charge the company for the remuneration and expenses incurred in accordance with the tariff prescribed by the Companies Act of 2008 (“the Act”).

Section 143 of the Act provides for the following:

A junior practitioner (less than 5 years experience) is entitled to fees at R1,250.00 per hour, an experienced practitioner (less than 10 years but more than 5 years experience) is entitled to fees at R1,500.00 per hour and a senior practitioner (more than 10 years experience) is entitled to fees at R2,000.00 per hour. The Act also provide for the BRP hourly fee to be capped per day.
The BRP may propose additional remuneration, to be calculated on the basis of a contingency. For example, should the business rescue plan be adopted or adopted within a particular time or resolve a particular contentious matter or the attainment of any particular result or combination of results relating to the business rescue proceedings.
Additionally, the BRP is entitled to be reimbursed for the actual costs of any disbursements incurred by the practitioner, or expenses incurred by the practitioner, to the extent reasonably necessary to carry out the practitioner’s functions.

The agreement as contemplated, will typically be guided by the above-mentioned provisions. Importantly this agreement will ultimately be subject to creditors approval at a creditors meeting. Should the creditors holding the majority voting interest deem the agreement to be unreasonable, considering the circumstances, they can object against it. The BRP and creditors will then have to discuss and decide on the most appropriate arrangement. Should the dispute not be resolved amicably, either parties can approach the court.

With the above being said, at this point one must wonder how a BRP gets remunerated whilst providing services to a company that is financially distressed. The answer to this question depends on the circumstances and specifically the objectives of the business rescue plan.

Generally, when the business rescue plan is based on the first leg of section 128(b)(iii) of the Act, being that the affairs of the business of the company are restructured to enable the company to continue on a solvent basis, the BRP will get paid on a monthly basis (or longer intervals depending on what is agreed) for the amount of work done. The BRP’s remuneration and disbursements will be included in the cash flow forecast in the business rescue plan that is presented to creditors.
When the business rescue plan is based on the second leg of section 128(b)(iii), being that the assets of the company are sold to achieve a better return for creditors as opposed to a liquidation, the BRP will generally only get paid out of the proceeds when the assets are sold. Similarly to the way a liquidator would get paid. In this case, the BRP’s remuneration and disbursements will be included in the realisation and distribution illustration in the business rescue plan that is presented to creditors.

To conclude, initially the BRP’s remuneration and disbursements is agreed between the company and the BRP, however this agreement is subject to the approval of the creditors holding the majority voting interest. Generally, would creditors deem the BRP’s remuneration to be reasonable if the business rescue plan is beneficial to affected parties, given the specific circumstances.

Article by Enrico Acker, Liquidator and Business Rescue Practitioner.

Contact details: 044 601 9900 / enrico@rgprok.com / www.rauchgertenbach.com