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The Board’s Authority to Appoint a Substitute Business Rescue Practitioner

May 2, 2024

During business rescue proceedings, the role of business rescue practitioners is pivotal. Once appointed, a practitioner assumes full management control, rendering the board of directors unable to act without the practitioner’s authorization. In the case of Tayob v Shiva Uranium 2020, the Supreme Court of Appeal deliberated on whether the board’s power to appoint a substitute practitioner in the event of death, resignation, or removal requires the approval or authority of the incumbent practitioner.

There are two avenues to initiate business rescue. If the board resolves to commence business rescue, it must appoint a practitioner. Alternatively, if a concerned party obtains a court order compelling the company to undergo business rescue, the creditors will select the practitioner.

In the instance of a practitioner’s removal under section 130 of the Companies Act, the court will appoint a replacement acceptable to the majority of independent voting interest holders present at the hearing. However, if a practitioner is removed under section 139 of the Act, or if they die or resign, the board or the nominating party must appoint a new practitioner. Notably, the Act does not grant practitioners the authority to appoint their successors.

In the aforementioned case, the court clarified that while section 137, in conjunction with section 140 of the Act, expressly delegates managerial authority to the practitioner, the decision to appoint a substitute practitioner by the board is independent of the practitioner’s authority or approval. The court reasoned that practitioner appointment pertains to governance, not management, and thus lies outside the scope of sections 137 and 140.

The court recognized that in many instances, only one practitioner oversees a company, and in the absence of that practitioner due to removal, resignation, or death, there would be no one to authorize the appointment of a substitute practitioner.

Disclaimer: The information provided above is generalized and should not be construed as legal advice.

Summary: The article discusses the board’s authority in appointing a substitute business rescue practitioner. It clarifies that while the appointed practitioner holds managerial authority, the decision to appoint a substitute rest with the board, independent of practitioner approval. The absence of such clarity can pose challenges in situations where the incumbent practitioner is unavailable.