Tag Archives: ASSETS

HOW GENERAL IS THE GENERAL MORATORIUM IN BUSINESS RESCUE

By: Danielle Koen and Thabile Fuhrmann

Since the inception of Chapter 6 of the Companies Act 71 of 2008, many creditors have become loathe of the word moratorium albeit the cornerstone of business rescue procedures. Section 133(1) of the Companies Act heralds the automatic and inevitable consequence of the commencement of business rescue proceedings, the general moratorium. The section sets out, with a number of exceptions that, during business rescue proceedings, no legal proceeding, including enforcement action, against the company or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with in any forum.

What we have come to understand about Section 133(1) is that it acts as a general moratorium or stay on legal proceedings or executions against the company, its property and its assets and, on the exercise of the rights of creditors of the company. This general moratorium, in principle, restricts legal proceedings against the company since such proceedings may have a detrimental effect on the outcome of the business rescue process. The stringency of the protection afforded to the company is however not a blank restriction against proceedings and can be relaxed by inter alia, (a) the written consent of the business rescue practitioner and (b) leave of the court.

The ambit of what is meant by legal proceedings and enforcement action was initially an uncertainty. A practical interpretation of the section clearly intends that enforcement action relates to formal proceedings ancillary to legal proceedings, such as the execution of court orders by means of writs of execution or attachment. These steps against the company cannot be initiated, and if they have already commenced, are frozen until the written consent of the business rescue practitioner or leave of the court has been obtained. A clear understanding of ‘enforcement action’ or legal proceedings relates to that which must be commenced or proceeded with in a forum, i.e. a court or tribunal. If this is what is understood by ‘enforcement action’ what then is left of a creditors contractual rights and obligations in terms of an agreement concluded between it and the company in rescue?

In a recent decision of the Supreme Court of Appeal, Cloete Murray NO & another v FirstRand Bank Ltd (20104/2014) [2015] ZASCA 39, the issue to be decided by the court was, whether once business rescue proceedings have commenced, the creditor of a company under business rescue can unilaterally cancel an existing agreement that it had concluded with the company prior to it being placed under business rescue.

Briefly set out, on 22 July 2010, FirstRand Bank Ltd t/a Wesbank, concluded a written Master Instalment Sale Agreement (the MISA) with Skyline Crane Hire (Pty) Ltd, in terms of which Wesbank sold and delivered movable goods to Skyline, with Wesbank retaining ownership in the goods until the purchase price had been paid in full. Skyline was voluntarily placed under business rescue on 30 May 2012 and by that date had fallen into arrears with its monthly payments to Wesbank. On this same date, Wesbank sent a letter to Skyline cancelling the MISA as a result of Skyline’s failure to make payment and reserved its right to repossess the goods, value and sell same and credit the relevant accounts. In any event, Wesbank sought and obtained the written consent of the business rescue practitioner to cancel the MISA. The business rescue proceedings were eventually discontinued and Skyline was placed in liquidation.

The liquidators of Skyline, the appellants in this instance, were of the view that in terms of Section 133(1), the cancellation of an agreement constitutes ‘enforcement action’ which requires the consent of the business rescue practitioner or the court. The court disagreed and found that if this interpretation was favoured, it would fundamentally change our law of contract which provides for unilateral cancellation in the case of a breach of contract.

Business rescue is intended to provide a company in distress with the necessary breathing space to enable it to restructure its affairs by placing a moratorium on legal proceedings and enforcement action but is not intended to interfere with the contractual rights and obligations of the parties to an agreement. This lends itself then to the concept that the general moratorium is a temporary one in respect of a creditor bringing claims against the company, rather than a greater restriction on a creditors’ rights. The decision of the Supreme Court of Appeal has therefore confirmed that the general moratorium is not as generally wide or far reaching so as to equate a creditor’s contractual right of cancellation to that of enforcement action and, that these concepts are in fact mutually exclusive.

Danielle Koen and Thabile Fuhrmann are attorneys at Cliffedekkerhofmeyer Attorneys at their Johannesburg Office

www.cliffedekkerhofmeyr.com

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)

YOUR WILL AND FOREIGN ASSETS

Each country has its own legislation regarding inheritance and signing of wills. It would therefore be possible that your South African will does not comply with all the requirements of the country where your foreign assets are located. This may result in the non-inheritance of your foreign assets in terms of your last will and testament. It is therefore imperative that you should have two wills if you have foreign assets; one for your South African assets and one regarding your foreign assets according to the regulations of the country where these assets are located. It is always important to plan your estate carefully; should you have foreign assets, however, you must take extra care to ensure that you meet all the requirements of the relevant country’s legislation.

The aim with planning an estate is ultimately to reach your goals in the distribution of your assets and liabilities. These goals should make provision for the management of your estate during your lifetime, but also after your passing.

A further consequence of the increasing  exposure to international investments is that South Africans are also exposed to foreign fiduciary services, including wills for their foreign assets.

Whether it is truly necessary to draw up a separate foreign will or just one global will depends on the following:

  • where your foreign assets are located;
  • the nature of the assets and the type of products in which these assets have been invested; and
  • who takes care of the administration of your foreign assets/investments.

Should your South African will be drawn up in Afrikaans, it may be necessary to have it translated and sealed before sending it to the foreign executor/agent. This could be time-consuming and very costly.

A separate foreign will also has other advantages: your foreign will is administered in line and simultaneously with your South African assets; an executor/agent who is familiar with the required procedures in the relevant country where your assets are located will save you time and money; and someone who draws up wills professionally within the jurisdiction of the relevant country can provide you with advice regarding the possible dangers in relation to tax accountability and hereditary succession when it comes to assets outside the borders of South Africa.

Although we would recommend drawing up a second will with reference to foreign assets, we suggest that, should there be any mention of foreign assets, your South African will must be drawn up in English and it should not pertinently refer to the fact that the document is only applicable to your South African assets.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

SHOULD I DRAFT A WILL?

A mother who has always wanted her daughter to inherit her diamond engagement ring may never get her wish if she dies without leaving a valid written will. The mother’s estate would then be distributed in terms of the Intestate Succession Act No. 81 of 1987.  

Taking the time to draft a will can leave you with the peace of mind that your assets will be distributed according to your wishes as far as possible. Your will should reflect exactly how you want your assets to be dealt with after your death and should not be contra bonos mores (against good morals). It should also not amount to “ruling from the grave”.

There are a number of legal requirements that have to be complied with for a will to be valid.  If it does not comply with all of these requirements it could be found to be invalid. Your estate would then also be dealt with in terms of the Intestate Succession Act of 1987. It is therefore of the utmost importance that you obtain the assistance of someone with the necessary specialised skill and knowledge to assist you with the drafting of your will.

A will should also regularly be revised and updated to adapt to your changing circumstances, for example after getting married, and when there is a child on the way. Section 2B of the Wills Act No. 7 of 1953 (as amended by the Law of Succession Act No. 43 of 1992) deals specifically with a change in marital status by way of divorce, and reads as follows:

If any person dies within three months after his marriage was dissolved by a divorce or annulment by a competent court and that person executed a will before the date of such dissolution, that will shall be implemented in the same manner as it would have been implemented if his previous spouse had died before the date of the dissolution concerned, unless it appears from the will that the testator intended to benefit his previous spouse notwithstanding the dissolution of his marriage.”

This can be explained by way of the following example: A and B get divorced and B dies within three months of the date of the divorce. B’s will was executed before they got divorced. Unless B’s will specifically indicated that A must benefit from B’s estate despite the divorce, B’s estate will then be distributed as if A died before they got divorced. A will therefore not inherit from B’s estate in this scenario. However, should B die more than 3 months after the divorce and B’s will, which benefits A, was not changed, then it will be seen as if B intended A to inherit, despite the divorce.

A person who was previously married and who remarries, should ensure that the necessary changes are made to his/her will. If not, this could have profound consequences for the “new” spouse, especially if the will still benefits the spouse from the previous marriage.

When there are minor children in the picture, it is advisable to make adequate provision for their living costs and education in your will. This can be done by creating a testamentary trust of which the minor children can be beneficiaries.

Thinking and talking about one’s passing is not a pleasant subject. Having a valid, clear and unambiguous will can prevent unpleasant family feuds caused by them having to make decisions about the distribution of your estate. It is certainly worth the time and effort to have a valid written will in place.

References:

Drafting of Wills 2013 – LEAD

Intestate Succession Act 81/1987

Wills Act 7/1953

Compiled by Riëtte Nel 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.