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Court support business rescue

May 18, 2017

What to do when a Creditor of the Company does not participate in good faith in the business rescue process?

In the matter between Copper Sunset Trading 220 (Pty) Ltd, t/a Build It Lephalale (under Business Rescue) vs Spar Group Ltd, two creditors voted against the proposed business rescue plan which meant the business rescue failed.

In accordance with the Companies Act, a business rescue practitioner may approach the Court, to vote against the business rescue plan, set aside, on the grounds that “it was inappropriate”. A Court may set aside these votes if the Court is satisfied that it is reasonable and just to do so.

Section 7(K) of the Act refers to the purpose of business rescue, which reads that one of the purposes of the Act is to “provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders.” Shareholders, creditors and employees are stakeholders in terms of the Act.

The Court further stated that “the aim of business rescue is to save a business, rather to destroy it. Business rescue is preferred to liquidation.”

The Court not only looked at the interests of the creditors, but also the interests of the employees who would lose their jobs if the company were liquidated.

In the above case the Court found that the “attitude of the one creditor in gunning for liquidation is self-serving and, with respect, unreasonable regard being had to the fact that it is the only creditor to probably gain” a dividend in liquidation.

The second creditor, who was likely to receive no dividend on liquidation of the company, the Court, found its vote against the business rescue plan to be “irrational”.

The Court found that the conduct of the creditors was inappropriate, the votes were set aside and the proposed business rescue plan was declared to be adopted.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances