Our business rescue legislation aims to save, wherever possible, any company in financial difficulty from total collapse and liquidation.
So for example the BRP (Business Rescue Practitioner) appointed to run the rescue process has the power to suspend any of the company’s obligations for the duration of the process. Moreover as a creditor you cannot start legal action against the company without a court’s authority (or the BRP’s consent).
Where does that leave you as the landlord if your tenant goes into business rescue?
A recent High Court case illustrates.
The facts: The sorry saga of an ailing nightclub
- A nightclub owned by a CC owed its landlord some R200,000 for arrear rental (grown to R600k by the end of this sorry saga).
- In financial straits, it was put into business rescue and the BRPs told the landlord that they had “suspended” the lease agreement for the duration of the business rescue.
- The landlord demanded payment from the BRPs and, when it wasn’t paid, cancelled the lease and demanded that the CC vacate the premises.
- The BRPs however continued trading on the premises, without paying a cent in rental. They then abandoned the business rescue proceedings as having no prospect of success and applied for the CC’s liquidation.
- The landlord asked the Court for confirmation that the lease had been validly cancelled, and to order the nightclub’s eviction.
The landlord and the law
Finding for the landlord the Court held that –
- Rentals due for the months after the business rescue proceedings commenced could not be claimed.
- However the claim for rentals due before the business rescue proceedings commenced was unaffected by the business rescue and could be claimed.
- The lease was accordingly validly cancelled during business rescue and the eviction order was granted.
That’s good news for landlords generally. It means that commencement of business rescue does not in itself stop you from cancelling the lease.
However as mentioned above, during business rescue you need a court’s authority (or the BRP’s consent) to start any legal action.
Where, as in this particular case, the business rescue has already failed and liquidation is imminent, you are likely to get that authority. If the Court finds that the lease has been validly cancelled it might even decide you don’t need its authority to take the next step and apply for eviction.
But where a successful business rescue is still on the cards the outcome might be different. The court in such a case may for example decide that you do need its authority, and refuse to give it to you because allowing you to proceed with eviction would jeopardise or destroy the business rescue effort.
Each case will be different – take advice on your particular circumstances.
NOTE FOR ATTORNEYS: Judgment in 178 Stamfordhill CC v Velvet Star Entertainment CC (1506/15) [2015] ZAKZDHC 34 is on Saflii – see [29] for the Court’s comments on whether leave to bring the proceedings for ejectment was necessary or not.