When attempting to save a company, owners may face significant financial losses. In November 2025, the Industrial Development Corporation presented data to parliament indicating that high costs, lengthy proceedings, and late start of rehabilitation procedures are serious obstacles.
A record number of 48 South African companies began the business rehabilitation procedure in February. However, for small business owners who invested their savings in the enterprise, attempting to save a troubled company can result in substantial financial costs.
A study prepared for the Turnaround Management Association Southern Africa (TMA-SA) based on an analysis of 4373 cases from the Companies and Intellectual Property Commission (CIPC) showed that as of March 2026, 1409 companies were undergoing business rehabilitation. The consequences for owners who personally financed the business or signed guarantees for the company's debts may extend beyond the loss of initial investments.
What is business rehabilitation?
Business rehabilitation is a legal mechanism provided for in the Companies Act that gives financially burdened enterprises a chance to restructure their affairs instead of immediately proceeding to liquidation. A licensed specialist temporarily oversees the company, certain lawsuits are suspended, and a plan is developed to resolve financial difficulties.
The goal of the process is either to restore the business's solvency or to ensure creditors and shareholders achieve a better outcome than immediate liquidation. A recent Appellate Court decision regarding Ubuntu Family Health Centre illustrated the limitations of this procedure. The company began rehabilitation in November 2023 after Capitec cancelled the financing agreement for a Porsche 911. Capitec attempted to recover the vehicle, and the Appellate Court ruled that the moratorium on business rehabilitation did not exempt the bank from the demand to return property that Ubuntu was illegally occupying. Ultimately, Ubuntu was liquidated on May 24, 2024.
For small businesses, the problem goes beyond luxury items; the loss of access to financed equipment or vehicles can undermine attempts to continue trading. Successful rehabilitation cases take an average of 18 months, while companies that ultimately fail spend more than a year in the process before moving to liquidation.
When should this measure be considered?
The process must begin before the company becomes insolvent. According to the Companies Act, a company is considered financially distressed if it is reasonably unlikely to be able to repay its debts as they fall due within the next six months, or if there is a reasonable probability of insolvency during that period.
Warning signs include constant cash shortages, difficulties paying suppliers or employees, growing debt, and the inability to attract additional funding. The board of directors can initiate voluntary business rehabilitation if it reasonably believes the company is in financial distress and there is a reasonable chance of saving it. Alternatively, an affected party, including a creditor, employee, or shareholder, can file a lawsuit to place the company under supervision.
What will the cost be?
Business rehabilitation is not free, and the specialist's fee is only one of the expenses. The Companies Act stipulates that for a small company, the basic set rate for a specialist is limited to R1,250 per hour or R15,625 per day, including VAT. Reasonable expenses and certain approved additional remuneration may also apply.
Furthermore, the business must provide funding for its current operations, which may include paying staff, suppliers, legal assistance, and restructuring costs. This creates a particular problem for SMEs, which already struggle to meet their obligations. In November 2025, the Industrial Development Corporation noted high costs reaching R10 million, lengthy proceedings, and late commencement of rehabilitation as significant barriers. It recommended introducing a rehabilitation regime specifically adapted for SMEs to reduce costs, as well as implementing early warning measures to identify financially distressed enterprises.
In June 2025, the High Court of Pretoria overturned the business rehabilitation of Seacrest Investments, a company with no employees, income, or operating business, after its specialist received a remuneration of over R2.2 million. The court found that the company's sole asset was sold for R3.4 million and ruled that the rehabilitation was initiated in bad faith, ordering the specialist, the company director, and the company itself to pay punitive legal costs. If a specialist concludes that there are no reasonable prospects of saving the company, the Companies Act requires filing an application with the court to terminate the proceedings and place the company into liquidation.
What happens to your money?
A company generally has a legal identity separate from its shareholders, meaning owners are not automatically held personally liable for all company debts upon entering business rehabilitation. However, this does not guarantee the protection of their personal finances. An owner who signed a personal guarantee for the company's loan can still face claims under that agreement, and money personally contributed to the company may be at risk. An owner holding 100% of the company may also lose their entire stake if the business is eventually liquidated without sufficient assets to cover liabilities. Business rehabilitation does not automatically cancel personal guarantees nor does it protect owner investments.
Does it really work?
The TMA-SA study shows that two-thirds of companies entering business rehabilitation return to operation, retaining 87% of their economic value. However, in the IDC's November presentation, the overall success rate was estimated to be between 12% and 15%. Stefan Stein, the TMA-SA director who conducted the study, warned that salvation is neither quick nor guaranteed. He noted: 'Successful rehabilitation cases take an average of 18 months to complete, while companies that ultimately fail spend more than a year in the process before moving to liquidation. This raises important questions about whether some enterprises start rehabilitation too late or remain in the process without realistic prospects of recovery.'
If a specialist concludes that there are no reasonable prospects of saving the company, the Companies Act requires applying to the court to terminate the proceedings and place the company into liquidation. Thus, for SME owners, business rehabilitation requires more than just finding a way to delay creditor demands; it requires a viable business, sufficient funding to continue operating, and realistic prospects for implementing the rehabilitation plan.