087 237 9752
083 629 6860

Suspension of obligations during business rescue

August 27, 2017

Once a company commenced with business rescue proceedings the practitioner may in terms of Section 136(2)(a) of the Companies Act suspend the obligations of the company.

In the matter of BP Southern Africa (Pty) Ltd v Intertrans Earl SA (Pty) Ltd & Others [2016], the court had to consider two issues: Firstly, whether such suspension suspends not only the obligations of the company to perform but also the obligations of the other contracting party. Secondly, the suspension of obligations on the cession of debtors in respect of debts which arose after business rescue.

In the above matter Intertrans leased property from BP and had the right to exclusively purchase BP’s products for resale. Intertrans ceded to BP all of its debtors, past and future, as security.

Intertrans commenced with business rescue and the practitioner suspended all the obligations of the company. The practitioner believed that all debts that arose in business rescue, after the suspension, did not form part of the cession agreement.

The court ruled that even though the company’s obligations are suspended, the other contracting party retains their rights in terms of the law of contract, including the right of cancellation. The court found that BP is entitled to withhold access to the property but must comply with the terms of the agreement. Therefore a company cannot suspend its obligations yet expect performance by the other parties.

The second issue was the status of cession of book debts. The practitioner argued that debts after the suspension do not form part of the cession of debtors’ agreement.

The court ruled that the cession of future book debt is complete and effective and when future book debts arise they become the property of the cessionary without any further obligations being placed on the cedent.

Therefore there was no obligation of Intertrans arising from the cession of book debts that was capable of being suspended and all debts were ceded to BP and could not be disposed of without their consent.

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