By Tobie Jordaan
Section 150(5) of the Companies Act 71 of 2008 (the Act) requires a business rescue practitioner to publish a business rescue plan within 25 days after the date of his or her appointment, or such longer time as may be allowed by the court or the holders of the majority of the creditors voting interests.
Sections 151 and 152 of the Act require the business rescue plan to then be considered, and possibly adopted, by creditors and holders of recognised voting interests at a meeting convened for such purpose. The further implementation and success or otherwise of a company’s business rescue proceedings are dependent on the approval or rejection of the business rescue plan.
What happens, however, when a business rescue plan is not published timeously? This question is particularly pertinent as the Act does not specify the consequence of a failure to publish a business rescue plan timeously.
Until recently, the leading case dealing with the consequences of a failure to publish a business rescue plan within the prescribed or allowed time period was that of Gorven J in the DH Brothers Industries (Pty) Ltd v Gribnitz NO and Others [2014] 1 All SA 173 (KZP). Gorven J held that the Act’s silence on this score constituted ‘yet another drafting lacuna’.
After considering the trespass on creditor’s rights when a company places itself under voluntary business rescue, Gorven J was of the opinion that the failure to publish a plan within the given or extended period resulted in the termination of the business rescue proceedings. He stated that even if he was wrong, one of three further consequences followed:
In terms of s 132(2) of the Act, business rescue proceedings end when the court sets aside a resolution or court order commencing business rescue proceedings, converted the proceedings to liquidation proceedings, the practitioner has filed a notice of termination of proceedings or where a business rescue plan has been adopted.
Gorven J’s decision was, however, not followed in the recent decision of Shoprite Checkers (Pty) Ltd v Berry Plum Retailers CC and Others (GNP) (unreported case no 47327/2014, 11-3-2015) (Tuchten J).
In the Shoprite Checkers matter, Tuchten J found that failure to publish a business rescue plan within the prescribed or allowed period did not result in an automatic termination of the business rescue process.
Tuchten J further found that if the legislator’s intention was to provide for a termination of the business rescue process on the failure to timeously publish a business rescue plan, an express provision to that effect would have been included in the Act. Tuchten J held that creditors are not left entirely without remedy as the Act provides for the consent by the holders of the majority of the creditors voting interests to be obtained for an extension of the time frames in which to publish the business rescue plan. The extension must be approved or allowed by the holders of the majority of the creditors voting interests.
As an aside, in DH Brothers, Gorven J held that such an extension could only be granted on due notice of a request for the extension and then at a formal meeting of creditors and other affected persons. Lazarus AJ, in the recent decision of Absa Bank Ltd v Golden Dividend 339 (Pty) Ltd (GNP) (unreported case no 70637/13, 19-12-2015) (Lazarus AJ), disagreed. Lazarus AJ found that the Act does not expressly require a meeting to be held to extend the time periods for the publication of the business rescue plan.
It appears that despite the introduction of ‘business rescue’ to the South African corporate landscape years ago, even more loopholes are being discovered and creditors are left with more questions than answers. It unfortunately, furthermore appears that judicial harmony is still to be reached in respect of certain key aspects of the Act, pertaining to business rescue; most particularly those pertaining to the consequences of a failure to timeously publish a business rescue plan and the manner and form in which the prescribed publication period can be extended. It is hoped that an appeal court can settle these uncertainties sooner rather than later.
Creditors are advised to protect themselves in the interim by being diligent and vigilant in protecting their rights by ensuring that the business rescue practitioner timeously meets his or her obligations. If creditors believe that a company’s placing itself under voluntary business rescue is simply a strategy to delay and frustrate creditors or that the prescribed time periods for the publication of a business rescue plan have not been met, creditors can and should approach a court to set aside the resolution placing the company under business rescue. Consideration should at the same time be given to seeking an order for winding-up the company. As an alternative to winding-up the company, and if a creditor holds security over the assets of the company, the creditor may wish to first exercise its rights, and secure its position, in this regard.
Tobie Jordaan BCom LLB (Stell) is an attorney at Cliffe Dekker Hofmeyr in Johannesburg.
This article was first published in De Rebus in 2015 (July) DR 60.
