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Panamo Properties (Pty) Ltd v Nel and Another NNO (35/2014) 2015 ZASCA 76 (27 May 2015)  

by Alex Eliott, Hogan Lovells and Dawie Van Der Merwe, Independent Advisory. 

This judgment is likely to have profound positive implications for the business rescue industry.

Summary and legal framework:

Business rescue proceedings – resolution by company in terms of s 129(1) of Companies Act 71 of 2008 – non-compliance by company with further requirements of ss 129(3) and (4) of the Act – effect – s 129(5) of the Act – non-compliance does not automatically result in the business rescue being terminated – such non-compliance a ground for bringing an application to court to set aside the resolution in terms of s 130(1)(a)(iii) of the Act – a court will only set aside such resolution if it is otherwise just and equitable to do so in terms of s 130(5) of the Act – the business rescue terminates in terms of s 132(2)(a)(i) of the Act once an order setting aside the resolution has been granted.

The highlights of the judgment and application to the present case:

Non-compliance with the procedural requirements of sections 129(3) and (4) of the Companies Act 71 of 2008 does not automatically result in the proceedings becoming a nullity, notwithstanding the provisions of section 129(5). The Advanced Technologies and Engineering vs Aeronautique  judgment of Fabricius J and others following that line, have been overruled.

An applicant who wishes to set aside a business rescue resolution or order must do so by approaching the Court in terms of section 130 of the Act. Trivial non-compliance with time periods do not bring about termination of the business rescue proceedings and the court will in such an application determine genuine issues of whether the company is in financial distress or remains capable of being rescued.

Only an affected person has the necessary locus standi to apply to court for such an order

The lapsing of a resolution does not automatically result in the business rescue proceedings terminating. Rather, the business rescue proceedings end only when a court order setting aside the resolution or order that began those proceedings, in terms of section 132(2)(a)(i).

The relevant statutory provisions are shoddily drafted but using a purposive approach, as described by Wallis J in Natal Joint Municipal Pension Fund v Endumeni Municipality, can be reconciled by means of a sensible interpretation that will avoid anomalies.

The disjunctive “or” between subsections 130(5)(a)(i) and (ii) must be read as a conjunctive “and”, which has the effect that the court may only set aside the resolution if it finds that it is just and equitable to do so (i.e. procedural deficiencies will never constitute sufficient grounds on their own to set aside the resolution)

The judgment expressly states that the above approach “largely precludes litigants, whether shareholders or directors of the company or creditors, from exploiting technical issues in order to subvert the business rescue process or turn it to their own advantage.” This approach also serves the purpose of section 7 of the Act which is to provide for the efficient rescue and recovery of financially distressed companies in a manner that balances the rights of all relevant stakeholders.

In this case a liquidation order which had been made by the court a quo at the instance of FNB was set aside. Effectively the business rescue practitioner was reinstated.

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.