When does a business rescue practitioner become functus officio?

February 24th, 2016
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Landosec (Pty) Ltd t/a Lasertech v McLaren (ECP) (unreported case no 2231/2015, 3-11-2015) (Smith J)

By Bouwer van Niekerk and Harold Smit

Does a business rescue practitioner (BRP) become functus officio after business rescue proceedings end in terms of
s 132 (2)(c)(i) of the Companies Act 71 of 2008 (the Act), namely after the business rescue plan that had been proposed had been rejected? This is the question that the court was tasked to answer in the judgment.

The facts

The company under supervision sought an order declaring, among others, that the business rescue proceedings of the company came to an end on a certain date – the date on which the business rescue plan was rejected, that the BRP ceased to act in his capacity as such, and was thus functus officio.

The BRP submitted a business rescue plan on 14 October 2014 for the consideration of the creditors at the second meeting in terms of s 151 of the Act. This plan was rejected by the creditors. No other resolutions were adopted at that meeting, nor were any instructions given to the BRP in regard to liquidation proceedings subsequent to the meeting.

Thirteen days after the meeting, the BRP issued a notice to all the affected persons, in which he confirmed that the business rescue plan had been rejected by the creditors, and that he had no option but to end the business rescue proceedings. In this notice, he also stated that he had instructed attorneys to launch an application for the winding-up of the company. The BRP intended to launch such proceedings out of the same court that presided over the application by the company, dependant on whether the court found that he had the requisite locus standi to move such an application.

During this period, the BRP continued to act on behalf of the company, and in particular purported to terminate the contracts of employees of the company, dealt with suppliers and customers of the company and closed the business of the company. The company sought an order declaring these acts of the BRP were null and void.

The legal question

The question posed at the beginning of this article surrounds the interpretation of s 132(2)(c)(i) of the Act. This section reads:

‘132 Duration of business rescue proceedings

(2) Business rescue proceedings end when –

(c) a business rescue plan has been –

(i) proposed and rejected in terms of Part D of this Chapter, and no affected person has acted to extend the proceedings in any manner contemplated in Section 153.’

The court commented on this section as follows:

‘The language of this provision is unambiguous and, when considered in the light of ordinary rules and grammar and syntax, and when read in context, brooks no other interpretation than the one contended for by the applicants, namely the business rescue proceedings end when the rescue plan is rejected by creditors and no affected person has taken any action in terms of section 153 (1) of the Act’ (para 7).

The court found that the BRP’s term of office came to an end on the date that the business rescue plan was rejected, that the BRP, therefore, did not retain any residual powers in terms of the Act, and was consequently functus officio. The court concluded that any subsequent decisions purportedly taken by the BRP on behalf of the company was null and void.

Although we agree with the judgment, we submit that the court did not deal with the most obvious section of the Act in coming to its conclusion.

In deciding this judgment, the court (correctly) referred to the judgment of Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] 2 All SA 262 (SCA). The judgment in the Natal matter is, in our view, the new locus classicus on interpretation in South African law, and is indispensible authority in interpreting not only legislation, but all legal documents. We quote the following passages from the Natal judgment that, in our opinion, would have greatly assisted the court in coming to its conclusion:

‘Interpretation in the process of attributing meaning to the words used in a document, be it legislation, some other statutory instrument, or contract, having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence.

The “inevitable point of departure is the language of the provision itself”, read in context and having regard to the purpose of the provision and the background to the interpretation and production of the document’ (para 18) (our italics).

When considering the question as to when a BRP becomes functus officio, we submit that one of the first, if not the first, section that should have been considered by the court is the section containing the definition of a BRP – how does the Act define a business rescue practitioner? Surely this section should provide some insights into when a BRP is nomine officio (and provide some clue as to when he or she is functus officio)? The relevant section is s 128(1)(d) of the Act. It reads –

‘“business rescue practitioner” means a person appointed, or two or more persons appointed jointly, in terms of this Chapter to oversee a company during business rescue proceedings and “practitioner” has a corresponding meaning’ (our italics).

The Natal judgment tells us to look at words used in the document (in this case, the Act). The Act clearly tells us what the term ‘business rescue practitioner’ means. This meaning is simple, and, on our reading of the Act, is not contradicted or subject to the reservation of any other section contained in ch 6 – the chapter governing business rescue proceedings.

Thus, the answer to the question posed in this judgment can be amplified as follows: A BRP is only a BRP during business rescue proceedings; he or she is only nomine officio for that term. This is so because that is how a BRP is defined in terms of s 128(1)(d) of the Act. Once the business rescue proceedings end, so does the BRP’s term, rendering him or her functus officio. This is not only the case where s 132(2)(c)(i) of the Act applies, but in all instances where business rescue proceedings end. Such instances are (in addition to that mentioned above) when –

  • the court sets aside the resolution or order that began the business rescue proceedings (s 132(2)(a)(i));
  • the court has converted the business rescue proceedings to liquidation proceedings (s 132(2)(a)(ii));
  • the BRP has filed with the Commission a notice of termination of business rescue proceedings (s 132(2)(b)); and
  • a business rescue plan has been adopted in terms of part D of ch 6 of the Act, and the BRP has subsequently filed a notice of substantial implementation of that plan (s 132(2)(c)(ii)).

In addition to the above, a BRP will necessarily become functus officio when the court sets aside his or her appointment in terms of s 130(6).

A BRP will also become functus officio if he or she is removed by a court on application by an affected person on any of the following grounds –

  • incompetence to perform the duties of a BRP (s 139(2)(a));
  • failure by the BRP to exercise the proper degree of care in the performance of his or her duties (s 139(2)(b));
  • when the BRP engages in illegal acts or conduct (s 139(2)(c));
  • if the BRP no longer satisfies the requirements set out in s 138(1) (s 139(2)(d));
  • when a conflict of interest or lack of independence arises (s 139(2)(e)); and
  • when the BRP in incapacitated and unable to perform the functions of that office, and is unlikely to regain that capacity within a reasonable time (s 139(2)(f)).

Lastly, a BRP will become functus officio if he or she dies or resigns.

 

Bouwer van Niekerk BA (Law) LLB (Stell) Post Grad Dip Labour Law (UJ) Cert Business Rescue Practice (Unisa & LEAD) and Harold Smit BCom (Law) (Economical Sciences) (UP) LLB (Unisa) are attorneys at Smit Sewgoolam Inc in Johannesburg.

This article was first published in De Rebus in 2016 (March) DR 34.