Business rescue as a mechanism for addressing bank failures: Possible lessons from the American approach

• Jurisdiction: South Africa
• Pages: 37-50
• Author: Chipatiso, T.
• Citation: (2018) 4(2) JCCL&P 37
• Date: 16 August 2019
• Published date: 16 August 2019

37

BUSINESS RESCUE AS A MECHANISM

FOR ADDRESSING BANK FAILURES:

POSSIBLE LESSONS FROM THE

AMERICAN APPROACH

TINASHE CHIPATISO*

Legal Consultant, Corporate Law

HERBERT KAWADZA†

Senior Lecturer, Banking and Finance Law, University of the Witwatersrand

ABSTRACT

The significant role played by banks in a modern economy is crucial

and explains why banks are subjected to extensive regulatory

frameworks. Despite such regulation and oversight, banks are

nevertheless prone to failure. They too can be susceptible to financial

distress and insolvency. Resolution mechanisms such as curatorship

have been implemented to address such financial problems. The

application and efficiency of that strategy has, however, been

subjected to criticism, particularly in South Africa. This article

proposes a regulatory change in the form of business rescue to

rehabilitate failing banks. More specifically, it argues that business

rescue is more efficient and preferred in achieving this purpose.

It draws lessons from other jurisdictions such as the United States

which implements, or has previously employed, business rescue as a

bank resolution mechanism.

I INTRODUCTION

The crucial role that banks play in the economy — linking depositors

and borrowers,1 among other critical functions — demands the

* LLB (Wits), LLM Corporate Law (Wits).

† PhD (Manchester), LLM (London), PGCE (Manchester Met), LLB Hons (UZ).

1 CC Okeahalam ‘The political economy of bank failure and supervision in the

Republic of South Africa’ (1998) African Journal of Political Science/Revue Africaine

de Science Politique 29; Herbert Kawadza ‘The South African financial safety net:

In support of the proposed deposit protection framework’ (2018) 135(3) South

African Law Journal 524; Ross Levine ‘Finance and growth: Theory and evidence’

Handbook of Economic Growth Volume 1A (2005) 865; Robin Burgess & Rohini Pande

‘Do rural banks matter? Evidence from the Indian social banking experiment’

(2005) 95(3) The American Economic Review 780.

(2018) 4(2) JCCL&P 37

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