But with the developments brought about by the Companies Act 71 of 2008 ("the Act"), company rescue was introduced. If there was, the way would really be to save the companies, but if not, it would be the liquidation process.
Introduction
2 Furthermore, since the definition includes "rescue of a company", the successful rescue of a company saves jobs6 as opposed to liquidation in which thousands are left unemployed. For example, 1,962 companies were liquidated in 2015.8 This number decreased slightly in 2016.9 This decrease became evident again in 2017, where the number of companies applying for liquidation decreased by 24.4% by the end of February 2017 as the number of companies that submitted. for liquidation at the end of February 2016.10 A further reduction of 9.6% was seen in the total number of liquidations recorded between March 2018 and March 2019.11 These statistics show a shift from a liquidation culture to companies starting to liquidate more rely on business rescue.12.
History of South African Business Rescue Mechanism
Joubert EP '“Reasonable Chance” vs. “Reasonable Prospect”: Has Corporate Rescue Succeeded in Creating a Better Test than Judicial Management Journal of Contemporary Roman-Dutch Law 551. Joubert EP '“Reasonable Chance” vs. “Reasonable Prospect”: Has Corporate Rescue managed to create a better test than judicial administration Journal of Contemporary Roman-Dutch Law (hereafter "Joubert") 552.
Problem Statement
On the other hand, section 131 (1) states that if a company would not have passed a resolution under section 129 above, then an affected person can make an application to place the company under business rescue. 7 This dissertation is based on the initiation of business rescue proceedings during liquidation proceedings and whether the decisions taken by the courts to initiate business rescue at any time during liquidation proceedings were correct or not.
Issues to be Examined
This thesis aims to look at both liquidation and business rescue proceedings and decipher whether the courts were correct in their decision about when business rescue proceedings can commence during liquidation proceedings. The importance of considering the above is due to the fact that many companies are currently experiencing financial difficulties, and liquidation or business rescue proceedings are the options they have left.
Research Methodology
However, both options should be carefully considered, taking into account the company's financial circumstances. However, many companies that do not have the option of resolution and have already decided to liquidate may wish to initiate company resolution proceedings to delay the inevitable and frustrate creditors, thus leading to the abuse of the newly developed concept that needs to be curbed. .
Structure of the Dissertation
This chapter gives a general background of the consequences of business rescue proceedings and the particular consequence of the suspension of liquidation proceedings by business rescue proceedings. In addition, the initiation of business rescue by affected person will also be considered along with the definition of "just and equitable".
Commencement of Business Rescue Proceedings
This chapter will explore the initiation of business rescue, by the board of directors, together with the requirements of business rescue, considering the definitions of "financial distress" and "reasonable prospect". This can also help the directors if there is an objection to the resolution, as they can use the accountant's advice to further substantiate their reasoning after the resolution is passed and would have a much better case than they would have without the accountant's advice. the accountant. . Alternatively, business rescue proceedings may be initiated by an application by an affected person in accordance with Article 131 of the Act, where an affected person may apply to the court to place a company under business rescue, provided that the company has not already decided to be placed under business rescue in the sense of Article 129 of the law.
The procedure for initiating an affected person's company rescue case is found in section 131, subsection of the Act. the application. As can be seen, there is a big difference in the procedure that a board of directors has to follow, as opposed to an affected person, when they want to bring a business rescue case. With regard to the procedure regarding affected persons, section 128(1) of the Act defines 1, letter a), an affected person as being a "shareholder or creditor in the company,
11 registered trade union or employees or their representatives.”35 What is interesting to note here is that affected persons do not include directors of the affected company. This basically means that if a director wants to put the company under business rescue, but the rest of the board does not want it, then the director's powers are limited and he has no further options available to him to proceed with the Application . To exclude a director (who certainly has a direct interest in the company) from filing an application for company rescue on his own is admittedly restrictive in relation to the law, especially in cases where the board is not acting in the best interests of the company.
Requirements for Business Rescue Proceedings
- General Background on Section 129 and 131(4)
- Meaning of Financial Distress
- Meaning of Reasonable Prospect
- Requirements to be Met of an Affected Persons
- Meaning of Just and Equitable to do so for Financial Reasons
As can be noted in the above, the threshold for demonstrating that a company should be placed under corporate rescue by an affected person is much higher than for a request from the board of directors.37 The reason for this is that there appear to be only two requirements requirements that the board of directors must meet to initiate corporate rescue, as opposed to an affected person who must meet four requirements. As seen above, section 129(1) provides that the rescue of companies may proceed if the board of directors has reasonable grounds to believe that:38. Once it has been determined that a company is in financial distress and there is a reasonable prospect of rescuing the company43, the company's board may decide to proceed with a business rescue.
In this regard, it can be seen that although it is not expressly defined in the Act, it is necessary to prove that there is a reasonable prospect that the business rescue will succeed and not to prove that the business rescue will necessarily succeed. 44 Regarding this, A.G. Brand FDJ appeared to take the same view in the case of Oakdene Square Properties (Pty) Ltd v Farm Bothasfontein (Kyalami) (Pty) Ltd51 which was the first business rescue case to be heard in the Supreme Court of Appeal. Considering the preceding discussion, it is evident that the main obstacle preventing the granting of a business rescue order is the ambiguity inherent in the definition of "reasonable prospect".
Joubert56 believes that one of the factors contributing to the ambiguity is the fact that the prohibition is to prove that there is actually a. The threshold for proving that an affected person must put a company into receivership is much higher than for an application made by a board of directors.57 This is because only two requirements appear to be necessary. a board of directors meets to begin a business resolution, as opposed to an affected person who must meet four requirements. One of the criteria that courts must be satisfied with when deciding whether to grant a business resolution order on the application of an affected person is whether it is "just and equitable on financial grounds"59.
General Background
Appointment of the Business Rescue Practitioner
The appointment of a business rescue practitioner can be done in two ways, namely by approval of the decision65 or by court order66. The benefit of having a business rescue practitioner is that they are an independent party who can bring a fresh new perspective to the company. Therefore, it can be said that the role played by the business rescue practitioner is important in the success of the business rescue process.
Consequently, it is important that a business rescue practitioner with the required knowledge of the business area in which the company operates is appointed. 72. Retrieved from https://www.wylie.co.za/articles/the-dos-and-donts-of-business-rescue/. Business rescue proceedings also seem to have the aim of protecting employees76 with provisions such as section 135 and section 136(1)(a) of the Act.
73 Levenstein An Evaluation of South Africa's New Business Rescue Procedure (LLD unpublished thesis, University of Pretoria 2016) at 494. This provision effectively assists the business rescue practitioner, as an additional burden of finding new employees who are not trained in business is softened. This is emulated in the Act by giving creditors the opportunity to accept or reject the business rescue plan. 84.
What are the requirements of liquidation?
This silence of the law has caused the courts to judge on this issue. In the Summer Lodge case, the court demonstrated that simply issuing and serving a business rescue application can have the effect of suspending liquidation proceedings. The legislator was not ambiguous in this regard with the wording of Article 131(2) of the law.
Makgoba J was of the view that liquidation proceedings relate only to the winding up process. If the court was of the opinion that the company was not insolvent, the liquidation order would not have been approved. Allowing a business to, at any stage, convert liquidation proceedings into business rescue proceedings may amount to reckless trading in contravention of Section 22 of the Act.
As a result of the silence in the Act, direction must be drawn from case law. The company and the business rescue practitioner naturally considered that control over the company rested with the business rescue practitioner on the basis of section 18(1) of the High Courts Act, No 10 of 2013 (High Courts Act). The reason for this was that the court considered that liquidation proceedings included both court proceedings and the process of liquidation of a company.
It seems that the courts have taken the right approach in deciding whether to control the company during the suspension of the liquidation proceedings. Levenstein An Appraisal of the New South African Business Rescue Procedure (Unpublished LLD Dissertation, University of Pretoria 2016).
