Section 129(7) of the South African Companies Act 2008 provides that if a board of a company has reasonable grounds to believe that the company is financially distressed but elects not to pass a resolution initiating business rescue proceedings, the board must deliver a written notice to each affected person (creditors, employees and its shareholders) detailing cogent reasons for not filing for business rescue.
The rationale for this provision is to notify all affected persons that the company may be financially distressed and that the board has opted not to adopt such a resolution.
Given the likelihood of liquidation applications and compulsory business rescue applications (amongst others) following such a notice, in reality, very few boards comply with the provisions of s129(7). While s129(7) does not explicitly provide for any sanction for a failure by the board to comply with its provisions, there is a real risk of personal liability for directors for non-compliance in these circumstances.