South African insolvency law is unfaltering in its resolve – with a prima facie rule – that business rescue practitioners may only implement those business-rescue plans adopted by creditors in terms of s 152 of the Companies Act 71 of 2008. Therefore, business rescue practitioners cannot give themselves the power to unilaterally amend those business plans voted on and adopted by creditors in terms of statute.
The Supreme Court of Appeal (SCA) in Vantage Goldfields SA (Pty) Ltd and Others v Arqomanzi (Pty) Ltd (SCA) (unreported case no 1302/2021; 1272/2021, 22-12-2022) (Windell AJA (Dambuza ADP, Molemela and Gorven JJA and Chetty AJA concurring)) recently handed down a judgment, which again affirmed and clarified this principle.
Through various provisions, the Companies Act sets the scene for a democratic field of practice between creditors and business rescue practitioners; thus, business-rescue plans are the product of that engagement between the two. The general tenor of these provisions is to guide the formal participation of creditors and business rescue practitioners in a company’s business rescue proceedings. Sections 150(1) and 151(3), respectively, can be classed among such provisions, which provide for the publication of proposed business rescue plans through meetings between creditors and holders of a voting interest.
Vantage Goldfields (Pty) Ltd (VGL), Barbrook Mines (Pty) Ltd (Barbrook) and Makonjwaan Imperial Mining Company (Pty) Ltd (MIMCO) (the Vantage companies) underwent business rescue, in succession, shortly after the collapse of a crown pillar at – Lily Mine, operated by MIMCO – where three employees tragically lost their lives. Vantage Goldfields SA (Pty) Ltd held 74% of VGL issued shares, and VGL owned all the shares of Barbrook. Shortly after the incident, creditors of the Vantage companies agreed that the only way to save any of the three Vantage companies was if they all were all placed under business rescue.
Business rescue plans were duly prepared and adopted by the creditors of the Vantage companies. The approved business rescue plans contained a clause, which sought, it would be argued, to allow business rescue practitioners to unilaterally amend the business rescue plans in certain circumstances. However, the approved business rescue plans were never implemented due to the complex methods of funding set out in the plans coming apart at the seams. Accordingly, the approved plans failed. Soon after the plans failed invitations for financing were reopened and Arqomanzi (Pty) Ltd (Arqomanzi) and Real Win investments (Pty) Ltd (RWI) came forward with offers. RWI proposed that the failed business rescue plans be ‘revived’ as it had the necessary funding to implement them.
Arqomanzi sought assistance from the court and brought two separate urgent applications seeking an order interdicting the Vantage companies from implementing previously adopted business rescue plans that had failed and proposed to be ‘revived’. On the first occasion it approached the court, Arqomanzi was unsuccessful with Roelofse AJ – finding that the adopted plans had not failed. However, Arqomanzi petitioned the court again on similar grounds with additional assertions and a rule nisi was issued, calling for interested parties to join the proceedings. The Vantage companies took the matter on appeal.
On appeal to the SCA the Vantage companies sought to rely on two cases: Knoop NO and Another v Gupta and Another 2021 (3) SA 88 (SCA) and Kransfontein Beleggings (Pty) Ltd v Corlink Twenty Five (Pty) Ltd and Others (SCA) (unreported case no 624/2016, 29-8-2017) (Mokgohloa AJA (Lewis, Bosielo and Saldulker JJA and Rogers AJA concurring)) as authority, to submit that it was possible for the business rescue practitioners to unilaterally amend business-rescue plans due to the presence of the clause in the business-rescue plans that allowed them to do so. In their judgment, the court through Windell AJA held that the dictum in Knoop is not the authority for allowing practitioners to circumvent the Companies Act, and that at most, clauses of this nature ‘would only allow for amendments of an administrative nature that do not affect the substance of the plan’ (para 25). Furthermore, Kransfontein Beleggings does not speculate on what should happen when adopted business plans cannot be implemented. The court reaffirmed that there are provisions within the Companies Act that facilitate the engagement between creditors and business rescue practitioners. Section 150(1) of the Companies Act stipulates that once a practitioner has consulted with creditors, affected persons and the company’s management, the business rescue practitioners must prepare business-rescue plans for consultation, consideration, and possible adoption. Section 153(1)(a)(i) entitles business rescue practitioners, if the amendment of business-rescue plans is rejected, to prepare a ‘revised’ plan to be resubmitted for approval by the creditors. Importantly, the court further held that there is no provision in the Companies Act that provided for the amendment of a business-rescue plans once they had been adopted.
The court concluded that litigants and business rescue practitioners were not entitled to ‘improve’ legislation where the statutory enactments do not afford a remedy.
Accordingly, the principles which govern South African insolvency law remain prescriptive. Business rescue practitioners cannot unilaterally make amendments to business-rescue plans that go to the heart of rescuing a distressed company, once those plans have been adopted in line with s 152 of the Companies Act. This is true even when the business rescue plans contained clauses in them which sought to entitle them to do so. Such clauses will not be enforceable.
Wandile Mbabane LLB (UNISA) writes in his personal capacity.
This article was first published in De Rebus in 2023 (May) DR 15.
