The process of business rescue as provided for in the Companies Act 71 of 2008 (“the Companies Act”), which although is still experiencing some teething issues, has become well established within business practice and has become a worthy alternative to the statutory norm of liquidation.
One of the main topics in the business rescue process is how business rescue and liquidation interact with one another in practice, and more specifically for the purposes of this article, would it be possible to institute business rescue proceedings if a final liquidation order has already been granted and proceedings in that regard have begun being instituted?
The following sections of the Companies Act become relevant, section 131 (1) and (6) state the following:
– (1) Unless a company has adopted a resolution contemplated in section 129, an affected person may apply to a court at any time for an order placing the company under supervision and commencing business rescue proceedings.
– (6) if liquidation proceedings have already been commenced by or against the company at the time an application is made in terms of subsection (1), the application will suspend those application proceedings until-
- o the court has adjudicated upon the application; or
- o the business rescue proceedings end if the court makes the order applied for.
The aforementioned sections make it clear that business rescue proceedings can be instituted ‘at any time’ during liquidation proceedings, however one must look at the meaning of liquidation proceedings in order to establish whether the Companies Act intended that ‘at any time’ includes the time after an actual final liquidation order has been given.
The court a quo in Dawid Jacques Richter v ABSA Bank Limited (20181/2014)_ ZASCA 100 (“Dawid Jacques Richter v ABSA”), held it was not competent to apply for business rescue after the issue of a final winding-up order. ABSA contended that when Mr Richter brought an application for business rescue of Bloempro (the company who employed Mr Richter as a chartered accountant), a final order of liquidation had already been granted against Bloempro and that it was no longer open to the court to consider an application for business rescue.
In Dawid Jacques Richter v ABSA, the court looked at the meaning of the liquidation process and referred to the meaning ascribed to it by authors Cilliers and Benade which in summary comprises the process prior to a company’s dissolution of realising its assets and applying them to creditors and shareholders of the company accordingly.
The court a quo’s reasoning in not considering the application for business rescue was based on the erroneous premise that upon a liquidation order being granted against a company, that company ceases to exist.
However, as highlighted in Dawid Jacques Richter v ABSA, this is not the case and until the affairs of the company have been finally wound up and the relevant Master’s certificate has been published in the Government Gazette, the company is not dissolved and still exists.
The court went on further to justify how important it is for business rescue proceedings to be able to be instituted after a final liquidation order has been granted and that there is no reason for the restrictive approach in interpreting the relevant section 131 (6) of the Companies Act as applied in the court a quo.
The bottom line remains that a court can dismiss any application for business rescue that is not genuine and bona fide or which does not establish that the benefits of a successful business rescue will be achieved and the mere fact that a final liquidation order has been granted does not automatically dismiss the chances of business rescue proceedings being applied.
The Supreme Court of appeal in Dawid Jacques Richter v Absa therefore confirms business rescue proceedings may be instituted after a winding-up order to liquidate the assets and account to creditors up and until the date of deregistration of the company.
H S Cilliers et al: Corporate Law; 3 ed, 2000