Upon the filing of a resolution to place a company into business rescue or the issuance of an application for such an order, a legal moratorium automatically comes into effect. While not mandatory, the business rescue practitioner typically notifies all known creditors of this moratorium. It is therefore essential for creditors to understand the nature, scope, and implications of the legal moratorium.
During business rescue proceedings, no legal action, including enforcement actions, may be initiated or continued against the company or any property owned or lawfully possessed by the company, except in the following circumstances: with the written consent of the business rescue practitioner, by leave of the court, as a set-off against any claim made by the company in legal proceedings, for criminal proceedings against the company, or concerning any property for which the company is a trustee.
In the 2015 case of Cloete Murray v Wesbank, the terms “legal proceedings” and “enforcement action” were defined. Legal proceedings refer to a lawsuit, while enforcement action encompasses formal steps ancillary to legal proceedings, such as enforcing court orders via writs of execution or attachment.
However, the moratorium does not apply to legal proceedings involving property not lawfully in the company’s possession, as established in the Kythera Court v Le Rendez-Vous case. The court held that the protection of the moratorium is inapplicable if the company is not in lawful possession of the asset in question.
Additionally, if any right to initiate legal proceedings or assert a claim against a company is subject to a time limit, that time period is suspended during the business rescue process. In other words, prescription is effectively paused during the company’s business rescue proceedings.
Disclaimer: The contents and information provided above are generalised and must not be acted upon as legal advice