By Njabulo Kubheka
‘In interpreting statutory provisions, recourse is first had to the plain, ordinary grammatical meaning of the words in question. Poetry and philosophical discourses may point to the malleability of words and the nebulousness of meaning, but, in legal interpretation, the ordinary understanding of the words should serve as a vital constraint on the interpretative exercise, unless this interpretation would result in an absurdity’ (Khampepe J in Chisuse and Others v Director-General, Department of Home Affairs and Another 2020 (6) SA 14 (CC)).
The Companies Act 71 of 2008 (the Act) has been the focus of interpretation in numerous courts since its implementation. This is largely attributed to the introduction of the new rescue mechanism in chapter 6 of the Act. The courts have played a significant role in addressing the ambiguities in the Act and offering clarity on provisions requiring interpretation. Despite coming into effect in 2011, the Act’s provisions continue to be the subject of interpretation in the courts over a decade later.
This case note seeks to discuss the judgment by the KwaZulu-Natal Local Division of the High Court in Durban in the matter of Tongaat Hulett Limited, where various issues were brought before the court for determination. However, this case note will deal specifically with the issue of interpretation of s 133 of the Act.
Background
Tongaat Hulett Limited (the First Applicant), voluntarily commenced business rescue on 26 October 2022. Soon after the commencement of business rescue, the affairs of the First Applicant were frozen to allow the joint appointed business rescue practitioners (the Practitioners) to familiarise themselves with the nature of the First Applicant’s operations.
The First Applicant had prior to commencement of business rescue entered into a Sugar Industry Agreement, (the Agreement) with the South African Sugar Association (the First Respondent). After commencement of business rescue, the Practitioners informed the First Respondent that the First Applicant’s obligations in terms of the Agreement had been suspended in accordance with s 136(2) of the Act. This, therefore, meant that the First Applicant would also not make any payments to the First Respondent in terms of the Agreement.
On 23 January 2023, the First Respondent informed the Practitioners that the First Respondent was entitled to payments despite the First Applicant being in business rescue. The reasoning by the First Respondent was that its debt was excluded from the general moratorium in terms of s 133(1)(f) of the Act. The Applicants held a different view, contending that the Practitioners were empowered to suspend the obligations of the First Applicant in terms of the Act.
The Applicants approached the court seeking an order declaring that the Practitioners were within their rights in terms of the Act to suspend any obligations of the First Applicant arising out of the Agreement for the duration of business rescue. The respondent opposed the application holding a view that the Agreement was incapable of being suspended in terms of the Act.
It is common cause that the First Respondent is an entity incorporated in terms of the provisions of the Sugar Act 9 of 1978. Furthermore, the First Respondent is governed by way of a constitution. From time to time, the Minister publishes the terms of governance of the First Respondent in the Government Gazette. It is against this backdrop that the First Respondent held a view that it is exempt from the general moratorium as it qualifies as a regulatory authority.
The law and judgment by the High Court
Section 133(1)(f) states that while business rescue proceedings are ongoing, no legal action, including enforcement measures, can be initiated or continued against the company or any of its property, unless it is proceedings by a regulatory authority carrying out its duties after notifying the business rescue practitioner in writing.
The court held that the Act imposes a general moratorium on legal proceedings in favour of companies in financial distress. The court further held that it must be understood that the general moratorium is not an absolute remedy for companies that have commenced business rescue. The court further held that there are instances where the general moratorium may be lifted, including the execution of duties by the regulatory authorities.
In arriving at its conclusion, the court adopted various principles applicable to interpreting statutory provisions. It held that the First Applicant cannot be allowed a blanket general moratorium on its obligations under the Agreement. The court stated that such an allowance would prevent the court from exercising its future jurisdictional powers in similar cases that may arise and simultaneously limit the practitioner’s discretion to provide consent in terms of the Act should the need to do so arise. The court further held that the textual interpretation of ss 133 and 136 of the Act does not empower the Practitioners to suspend the obligations of the First Applicant under the agreement or prevent the First Respondent from enforcing those obligations. The court dismissed the application and also granted a costs order of two counsel against the applicants.
Conclusion
It is contended that the perspectives and methodology embraced by the court in this case were accurate. The perspectives and the methodology serve as a warning to all the pertinent stakeholders regarding the legislative intent behind the inclusion of the provisions in s 133 of the Act. The outcome of this ruling implies that stakeholders will now need to assess the responsibilities of all parties involved in the agreement meticulously before deciding whether to halt the contractual obligations or not. Furthermore, this particular case highlights the importance for the appointed business rescue practitioners to determine initially whether the expenses to be suspended are related to the costs of conducting business, such as regulatory costs, or if they stem from contractual obligations before utilising the provisions of s 133.
Njabulo Kubheka BA LLB LLM (UKZN) is a Legal Counsel with Absa Group Legal in Johannesburg.
This article was first published in De Rebus in 2024 (September) DR 37.
