When Post-Commencement Finance Is (and Isn't) Available
The single most common financial question in a business rescue is: how does the company keep operating between the moratorium and the plan vote? The answer, in almost every rescue that survives, is post-commencement finance.
Section 135 of the Companies Act 71 of 2008 (Republic of South Africa, 2008) creates the framework: money advanced to the rescued company after commencement of rescue proceedings ranks ahead of most pre-commencement claims, giving the lender a strong priority position. The statutory frame is elegant. The practical reality is harder. This piece sits under the m4 pillar on the first ninety days of business rescue. It explains what section 135 actually offers, what it does not, and how the advisor team structures PCF for the rescues where it is available.
What section 135 actually creates
Section 135 provides that any remuneration, reimbursement of expenses, or claim for services rendered by the practitioner ranks first in the order of priority; any claim for money advanced to the company under a post-commencement financing agreement ranks second, subject to the practitioner's claim; and secured post-commencement financing ranks according to its security, ahead of unsecured pre-commencement claims (Companies Act 71 of 2008, s. 135).
The mechanism is powerful. A commercial lender advancing new money into a rescued company is not standing behind the pre-commencement creditors; the lender is standing ahead of them, either as an unsecured priority claim under section 135(3) or as a secured claim under section 135(2). This is the reason PCF is available at all in situations where ordinary distressed lending would not be.
Two features of section 135 matter for structuring. First, the priority is created by statute, not by contract, so a PCF lender does not need to negotiate for the priority; they get it by virtue of the transaction occurring after commencement. Second, the priority applies both during the rescue period and, if the rescue fails and the company moves to liquidation, in the subsequent winding-up. The PCF lender's position survives the transition.
When PCF is available
Three conditions typically need to be present for a rescued company to attract PCF.
A credible use of proceeds. Lenders will advance PCF where the money keeps the business operating in a way that preserves or enhances value. Payroll, critical supplier payments, working capital to complete a large contract, transitional costs during a distressed sale: these are the standard use cases. PCF to finance an experimental new venture, or to pay pre-commencement creditors preferentially, is not typically available.
A defensible exit. The PCF lender needs to see how they get paid back. In a going-concern rescue this is usually the operating cash flow of the restored company, sometimes supplemented by refinancing at plan implementation. In a distressed-sale rescue the exit is the sale proceeds. Where no defensible exit exists, PCF is not available regardless of how attractive the priority position looks in principle.
A credible practitioner and advisor team. PCF lenders are lending against the reputation and competence of the people running the rescue, not just against the numbers. Practitioners with a track record of well-run rescues, supported by advisor teams the lender knows and trusts, secure PCF that other rescues cannot. Loubser (2010) noted this pattern in her comparative analysis: modern rescue regimes tend to concentrate PCF lending among lenders and practitioners who have transacted together before.
When PCF is NOT available
Symmetric to the availability conditions are the situations where PCF simply does not appear regardless of what section 135 provides.
Deeply insolvent balance sheets with no going-concern narrative. Where the underlying business economics do not support a plausible restoration, PCF lenders will not lend against the section 135 priority alone. The priority protects the lender only if there is value to recover against; where the company will not generate cash under any realistic scenario, the priority is meaningless.
Unavailable or unfriendly primary lender. The company's existing senior debt provider is usually the most rational source of PCF: they have the information, they have the security infrastructure, and they have the strongest interest in preserving value. Where the primary lender has already decided to enforce, or where the primary lender's internal credit team has flagged the exposure for exit, PCF from that channel is closed. Alternative PCF providers (specialist distressed lenders, DFIs with rescue mandates, strategic investors) exist but are fewer and slower.
Fully-encumbered security package. Section 135(2) recognises secured PCF, but only where security can be granted. If the company's material assets are already encumbered by pre-commencement security that leaves no unencumbered collateral, secured PCF is limited to unsecured priority under section 135(3). Some lenders will accept that; many will not.
Litigation or regulatory overhang. Companies in rescue with material unresolved litigation exposure, or with regulatory sanctions pending, struggle to attract PCF because the priority position is qualified by the potential future claims. Bradstreet (2011) noted that this is one of the areas where practitioner independence and PCF availability interact: practitioners who are perceived to be too close to management may find lenders reluctant to advance PCF on their say-so alone.
Structures that work in African markets
Several PCF structures recur in South African rescues, and each has its own place.
Revolving overdraft continuation. The simplest structure. The primary lender allows the pre-commencement overdraft to continue on modified terms during the rescue, with the incremental drawings ranking as section 135 PCF. Cheap to document, fast to execute, works only where the primary lender is engaged.
New-money term facility. A defined tranche of new money is advanced by a lender (often but not always the primary lender), on documented terms, with a specific use of proceeds and a specific exit. Priority under section 135(2) or (3) depending on whether security is granted. Standard for larger rescues.
DFI-anchored PCF. In rescues with public-interest dimensions (state-owned enterprise components, infrastructure links, employment materiality), a development finance institution may anchor the PCF with a commercial bank participation. The DFI's mandate tolerance for distressed exposure is what unlocks the commercial layer.
Strategic investor PCF. A prospective purchaser of the business advances PCF to keep it operating during a distressed-sale negotiation, with the PCF often converting to purchase consideration on completion. Elegant structurally, difficult to execute without careful priority documentation to protect the seller-creditors' interests.
What the advisor team models
The advisor team's job in the first thirty days is to model the PCF requirement and the PCF availability in parallel.
The PCF requirement is a rolling cash forecast: how much cash the company needs to have available at each week of the rescue period, given the operating pattern, the seasonality, the working capital position, and the specific interventions the practitioner is executing. This is the numerator.
The PCF availability is the honest assessment of which lenders would advance which structures against which security. This is the denominator. Where the requirement exceeds the availability, the rescue is not workable under the current shape; either the requirement needs to compress (through operational actions) or the availability needs to expand (through additional security, new counterparties, or restructured terms).
The advisor team feeds this model to the practitioner, who uses it in negotiations with lenders, in the plan's PCF section, and in the section 147 meeting's factual answer to the "how much PCF have you raised" question. Rescues where the advisor team does this work rigorously secure PCF more consistently than rescues where it is treated as an afterthought.
Cross-border comparison
The priority position of post-commencement (or debtor-in-possession, DIP) finance is not unique to South Africa. Chapter 11 of the US Bankruptcy Code has a well-developed DIP finance market with substantial specialist lending capacity. UK administration includes an analogous priority for expenses of the administration. The EU Restructuring Directive (European Union, 2019) provides equivalent priority in restructuring proceedings across member states. The mechanics differ; the underlying principle that new money should be priorityised over pre-commencement claims is widely shared. Cross-border rescues involving South African subsidiaries of foreign parents often coordinate PCF arrangements across the affected jurisdictions to preserve the priority position in each.
What good looks like
A well-structured PCF facility does three things: it funds the operating requirement with a comfortable buffer, it documents the priority position in a way that survives challenge, and it aligns the interests of the lender with the interests of the rescue. Where all three are present, the PCF is not just a financing arrangement; it is a stabilising force that gives the plan the runway it needs to be adopted and implemented.
Where any of the three is missing, the PCF becomes a source of friction: covenant breaches during the rescue, disputes about priority at implementation, or misalignment between the lender's preferred exit and the practitioner's plan for the company. The advisor team's job is to structure the PCF so that these frictions do not emerge later.
The CentraSolve Business Rescue module supports this workflow: from the rolling cash forecast that identifies the PCF requirement, through the modelling of the security stack that determines availability, to the plan documentation of the PCF terms and their interaction with the classification structure.
References
Primary legislation
Republic of South Africa. (2008). Companies Act 71 of 2008, Chapter 6, especially sections 135, 143, and 150. Pretoria: Government Printer.
Comparative sources
European Union. (2019). Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks. Brussels: Official Journal of the European Union.
Academic sources
Bradstreet, R. S. (2011). The leak in the Chapter 6 lifeboat: Inadequate regulation of business rescue practitioners may allow scheming managers to sink the ship. South African Mercantile Law Journal, 23(2), 195–213.
Loubser, A. (2010). Some comparative aspects of corporate rescue in South African company law [Doctoral thesis, University of South Africa]. UNISA Institutional Repository. https://uir.unisa.ac.za