The question of when business rescue proceedings formally commence has long been a point of uncertainty in South African law. Sections 131 and 132 of the Companies Act 71 of 2008 (the Act) provide the legislative framework for the initiation of business rescue proceedings, but conflicting interpretations of these sections have created ambiguity. This uncertainty carries significant implications for companies, creditors, and practitioners, as it directly impacts procedural timelines, rights, and the limitations of conduct during business rescue proceedings.
An interpretation of s 132(1)(b) of the Act suggests that business rescue proceedings commence when an affected party applies to the court for an order placing the company under supervision. However, this interpretation was challenged due to conflicting readings of
s 131(4), which explicitly states, as per the heading, that business rescue proceedings begin on the granting of a court order. The matter was further complicated by the requirement that a business rescue application must be lodged with the Registrar of the High Court and served on the Companies and Intellectual Property Commission.
In cases such as Investec Bank Ltd v Bruyns 2012 (5) SA 430 (WCC) and Taboo Trading 232 (Pty) Ltd v Pro Wreck Scrap Metal CC and Others 2013 (6) SA 141 (KZP), the courts highlighted this contentious issue but left the question of when business rescue proceedings officially commence open for future judicial determination.
In the case of Sundays River Citrus, with judgment delivered by the Eastern Cape Division of the High Court on 17 September 2024, the court provided critical clarification on this issue. It affirmatively held that business rescue proceedings commence on the granting of a court order and not when the initial application is lodged.
Despite considering various factors, the court’s decision ultimately hinged on a purposive interpretation of the Act, the sequence of events following the commencement of business rescue, and the business rescue practitioner’s role. The primary purpose of business rescue proceedings is to provide a legislative framework for a business rescue practitioner to assist financially distressed companies, following their appointment subsequent to the initial order of court. Thus, interpreting the proceedings as commencing only on a court order aligns with the Act’s purpose, ensuring proper supervision from the outset. Treating the proceedings as commencing on the date of application, when no practitioner could yet be appointed, appeared to be in conflict with this purpose.
The court furthermore highlighted that an alternative interpretation of this issue would lead to an indeterminate period between the date of the application and the date of the initial court order where business rescue proceedings were ongoing without oversight.
The outcome of the Sundays River Citrus case also provided welcome certainty as to when the general moratorium was triggered.
George Huysamer BCom (Law) LLB (Stell) is a candidate legal practitioner at Bernadt Vukic Potash & Getz Attorneys in Cape Town.
This article was first published in De Rebus in 2024 (December) DR 50.
