Tag Archives: Business Rescue Proceedings

IS IT COMPETENT FOR A BRP TO TERMINATE BUSINESS RESCUE PROCEEDINGS AND THEN NOT LIQUIDATE THE COMPANY?

Western Crown Properties 61 (Pty) Ltd / Able Walling Solutions (Pty) Ltd & Others/ 8073/16

Synopsis

The Western Cape High Court has recently had occasion to deal with the provisions of section 141(2)(a)(ii) read with section 132 (2)(b) of the Companies Act No. 71 of 2008 (the Act) relating to the termination of business rescue proceedings and despite the fact that the judgment is obiter on the relevant provisions of the Act, the impact of such judgment cannot be discounted.

Relevant Provisions

Section 141(2)(a)(ii) of the Act provides as follows:

“(2) If, at any time during business rescue proceedings, the practitioner concludes that—

(a) there is no reasonable prospect for the company to be rescued, the practitioner must—

(ii) apply to the court for an order discontinuing the business rescue proceedings and placing the company into liquidation…”

The provisions of section 141(2)(a)(ii) must however be read in conjunction with the provisions of section 132(2)(a) and 132(2)(b) of the Act and such section/s provides as follows:

“(2) Business rescue proceedings end when—

“(a) the court—

    (i) sets aside the resolution or order that began those proceedings; or

    (ii) has converted the proceedings to liquidation proceedings;

(b) the practitioner has filed with the Commission a notice of the termination of business rescue proceedings…”

Relevant facts

Western Crown sought the setting aside of the resolution taken by the directors of Able Walling placing the company in business rescue, alternatively that the business rescue proceedings be converted in liquidation proceedings. The business rescue practitioner (BRP) elected to abide by the Court’s decision, while the sole shareholder of the Company, opposed the application for reasons related to, inter alia, the locus standi of the applicant, Western Crown.

The pertinent facts referred to in the judgment of Savage, J (relating to the Courts interpretation of the provisions of section 141(2)(a)(ii) read with section 132 (2)(b) of the Act) were the actions taken by the BRP subsequent to him resolving that there was no longer a reasonable prospect of the Company being rescued and subsequently the filing by the BRP of the relevant notice to this effect with CIPC.

Despite the Western Crown’s submissions to the contrary, the Court consider the wording of the section 141(2)(a)(ii) of the Act and gave effect to the operative wording of the provisions of such section being, “at any time during business rescue proceedings”. In doing so Savage, J found, albeit on an obiter basis, that the action by the BRP of filing the relevant notice of termination of the business rescue proceedings with CIPC, that it followed that the business rescue practitioner was under no obligation to then seek the liquidation of the Company, as the business rescue proceedings had in fact already terminated by then.

Possible Effect of the Judgment

The effect of the judgment, on an ordinary interpretation thereof, appears to indicate that should business rescue proceedings be terminated by operation of a notice to such effect being filed with CIPC, in the prescribed manner, that in fact there no longer exists an obligation on the business rescue practitioner to act in terms of the section 141(2)(a)(ii) of the Act in seeking the liquidation of the Company, as the business rescue proceedings have, by operation of law, been terminated.

It therefore follows that the business rescue practitioner, who is appointed nomine officio, would no longer have the necessary locus standi to do so and as such the Company would be returned to its director/s.

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. (E&OE)