Business rescue legislation: Part A - Business rescue proceedings

 

Go to Business rescue legislation forums to discuss these individual sections of Chapter 6 of the Companies Bill, 2007.

130. Definitions applicable only to this Chapter

(1) In this Chapter–

(a) “affected person”, in relation to a company, means -

(i) a shareholder or creditor of the company;

(ii) any registered trade union representing employees of the company; and

(iii) if any of the employees of the company are not represented by a registered trade union, each of those employees or their respective representatives;

(b) “business rescue” means proceedings to facilitate the rehabilitation by its management of a company that is insolvent, or may imminently become insolvent, by providing for –

(i) the temporary supervision of the management of the affairs, business and property of the company;

(ii) a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and

(iii) the development and implementation, if approved, of a plan to rescue the company by re-structuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company;

(c) “creditor” means a person to whom a company owes money under any arrangement immediately before the beginning of the company’s business rescue proceedings, and for greater certainty, does not include a person who provides post–commencement finance to the company, as contemplated in section 138, except to the extent that such a person was a creditor of the company before providing that post-commencement finance;

(d) “independent creditor” means a creditor of the company, including an employee of the company who is a creditor in terms of section 147(1), who is not related to the company, a director, or the supervisor;

(e) “rescuing the company” means achieving the goals set out in the definition of ‘business rescue’ in paragraph (b);

(f) “supervision” means the oversight imposed on the management of a company during its business rescue proceedings; and

(g) “voting interest” means an interest as recognised, appraised and valued in terms of section 148(4) to (7).

(2) For the purpose of paragraph (d), an employee of a company is not related to that company solely as a result of being a member of a trade union that holds shares of the company.

131. Insolvency of a company

(1) For the purposes of this Act, an insolvency event occurs with respect to a company if -

(a) an amount exceeding the minimum value prescribed in terms of subsection (3) is due and payable by the company to a creditor, by cession or otherwise, and that creditor –

(i) has served on the company a demand requiring the company to pay the amount that is due and payable; and

(ii) the company has not paid the amount demanded, or otherwise satisfied the creditor, within 15 business days after the demand was served;

(b) any process issued on a judgment, decree or order of a court in favour of a creditor of the company has been returned by the sheriff or the messenger with an endorsement that there appears to be insufficient disposable property to satisfy the judgment, decree or order or that any disposable property found did not upon sale satisfy the judgment, decree or order; or

(c) a Court is satisfied that the company is unable to pay its debts.

(2) In determining for the purpose of subsection (1)(c) whether a company is unable to pay its debts, the Court must take into account all current, contingent and prospective liabilities of the company.

(3) From time to time, the Minister must prescribe a minimum value for the purpose of subsection (1)(a).

132. Company resolution to begin business rescue

(1) Subject to subsection (2)(a), either the shareholders of a company by ordinary resolution, or the board of the company, may resolve that the company voluntarily begin business rescue proceedings and place the company under supervision, if, in either case, -

(a) an insolvency event has occurred, or the shareholders or directors, as the case may be, believe that the company is insolvent, or may imminently become insolvent; and

(b) there appears to be a reasonable prospect of rescuing the company.

(2) A resolution contemplated in subsection (1) -

(a) may not be adopted if liquidation proceedings have been initiated by or against the company; and

(b) has no force or effect until it has been filed with the Commission.

(3) A company that has adopted a resolution contemplated in subsection (1) must –

(a) publish a notice of the resolution, and its effective date, in the prescribed manner to every affected person within 5 business days after the resolution has been filed with the Commission;

(b) appoint a supervisor who satisfies the requirements of section 141, and has consented in writing to accept the appointment, within 5 business days after the resolution has been filed with the Commission, or such longer time as the Commissioner, on application by the company, may allow;

(c) file a notice of the appointment of a supervisor with the Commission within 2 business days after making the appointment; and

(d) publish a copy of the notice of appointment to each affected person within 5 business days after the notice was filed with the Commission.

(4) If a company fails to comply with subsection (3)(b) or (c) –

(a) its resolution to begin business rescue proceedings and place the company under supervision lapses and is a nullity; and

(b) the company may not adopt a further such resolution for a period of three months after the date on which the lapsed resolution was adopted, unless the Court, on good cause shown, gives prior consent for such a further resolution.

(5) A company that has adopted a resolution contemplated in this section may not adopt a resolution to begin liquidation proceedings, until the business rescue proceedings have ended as determined in accordance with section 135(2).

133. Objections to company resolution

(1) Subject to subsection (2), at any time after the adoption of a resolution in terms of section 132, until the adoption of a business rescue plan in terms of section 155, an affected person may apply to a court for an order setting aside -

(a) the resolution, on the grounds that there is no reasonable prospect for rescuing the company; or

(b) the appointment of the supervisor, on the grounds that the supervisor –

(i) does not satisfy the requirements of section 141;

(ii) is not independent of the company or its management; or

(iii) lacks the necessary skills, having regard to the company’s circumstances.

(2) An affected person who, as a shareholder or director of a company, voted in favour of a resolution contemplated in section 132 may not apply to the court in terms of subsection (1)(a) to set aside that resolution.

(3) An applicant in terms of subsection(1) must –

(a) serve a copy of the application on the company and the Commission; and

(b) notify each affected person of the application in the prescribed manner.

(4) Each affected person has a right to participate in the hearing of an application in terms of this section.

(5) When considering an application in terms of subsection (1)(a) to set aside the company’s resolution, –

(a) if there is overwhelming evidence supporting the applicant’s position that there is no reasonable prospect of rescuing the company, the court must set aside the resolution; or

(b) in any other case, the court -

(i) must afford the supervisor sufficient time to form an opinion whether or not there is a reasonable prospect of rescuing the company; and

(ii) after receiving a report from the supervisor, may set aside the company’s resolution only if there is overwhelming evidence that there is no reasonable prospect of rescuing the company, and if it makes an order setting aside the resolution, may make any further necessary and appropriate order, including an order placing the company under liquidation.

(6) If, after considering an application in terms of subsection (1)(b), the court makes an order setting aside the appointment of a supervisor -

(a) the court must appoint an alternate supervisor who satisfies the requirements of section 141, recommended by, or acceptable to, the holders of a majority of the independent creditors’ voting interests; and

(b) the provisions of subsection (5)(b)(i), if relevant, apply to the supervisor appointed in terms of paragraph (a).

134. Court order to begin business rescue proceedings

(1) If an insolvency event has occurred with respect to a company, but the company has not adopted a resolution contemplated in section 132, an affected person may apply to the court for an order placing the company under supervision.

(2) If liquidation proceedings have already been commenced by or against the company at the time an application is made in terms of subsection (1), the application will suspend those liquidation proceedings until-

(a) the court has adjudicated upon the application; or

(b) the business rescue proceedings end, if the court makes the order applied for.

(3) An applicant in terms of subsection (1) must-

(a) serve a copy of the application on the company and the Commission; and

(b) notify each affected person of the application in the prescribed manner.

(4) Each affected person has a right to participate in the hearing of an application in terms of this section.

(5) After considering an application in terms of subsection (1)–

(a) if there is overwhelming evidence that there is no reasonable prospect of rescuing the company, the court must dismiss the application, and may make any further necessary and appropriate order, including an order placing the company under liquidation; or

(b) in any other case, a court may make an order–

(i) placing the company under supervision; and

(ii) requiring the company to appoint a supervisor, if unless the company has does not have effective management.

(6) If, at the time the court makes an order in terms of subsection (5)(b), the company does not have effective management, the court may make a further order appointing a supervisor who satisfies the requirements of section 141, recommended by, or acceptable to, the holders of a majority of the independent creditors’ voting interests.

(7) In addition to the powers of a court on an application contemplated in this section, a court may make an order contemplated in subsection (5), or (6) if applicable, at any time during the course of any liquidation proceedings or proceedings to enforce security against the company.

(8) A company that has been placed under supervision in terms of this section -

(a) may not adopt a resolution placing itself in liquidation until the business rescue proceedings have ended;

(b) must notify each affected person of the order within 5 business days after the date of the order;

(c) if required by the court order to appoint a supervisor, must appoint a person who satisfies the requirements of section 141 and has consented in writing to accept the appointment, within 5 business days, or such longer time as the court may allow, after the date of the order;

(d) must file with the Commission a notice of the appointment of a supervisor, whether by the company or by the court, within two business days after the appointment has been made; and

(e) must publish a copy of the notice of appointment to each affected person, within 5 business days after the notice was filed with the Commission.

(9) If a company -

(a) complies with subsection (8)(c), the provisions of section 133(1)(b) apply with respect to that appointment; or

(b) fails to comply with subsection (8)(c),

the court must appoint a supervisor recommended by, or acceptable to, the holders of a majority of the independent creditors’ voting interests.

135. Duration of business rescue proceedings

(1) Business rescue proceedings begin when -

(a) the company files with the Commission a resolution to place itself under supervision in terms of section 132;

(b) a person applies to the court for an order placing the company under supervision in terms of section 134(1); or

(c) during the course of liquidation proceedings, or proceedings to enforce a security interest, as contemplated in section 134(6), a court makes an order placing the company under supervision.

(2) Business rescue proceedings end when -

(a) the court sets aside the resolution or order that began those proceedings;

(b) a business rescue plan has been proposed and rejected in terms of Part D, and no affected person has acted to extend the proceedings in any manner contemplated in section 156;

(c) a business rescue plan has been adopted in terms of Part D, and the supervisor has subsequently filed with the Commission a Notice of Substantial Implementation of that plan;

(d) the supervisor has filed with the Commission a Notice of the Termination of Business Rescue Proceedings; or

(e) the proceedings have been converted by court order to liquidation proceedings.

(3) If a company’s business rescue proceedings have not ended within three months after the start of those proceedings, the supervisor must –

(a) prepare a report on the progress of the business rescue proceedings, and update it at the end of each subsequent month until the end of those proceedings; and

(b) deliver the report and each update in the prescribed manner to –

(i) each affected person; and

(ii) the court, if the proceedings arose as a result of a court order.

136. General moratorium on legal proceedings against company

(1) During business rescue proceedings, no legal proceeding, including enforcement action, against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with in any forum, except -

(a) with the written consent of the supervisor;

(b) with the leave of the court and in accordance with any terms the court considers suitable;

(c) as a set-off against any claim made by the company in any legal proceedings, irrespective whether those proceedings commenced before or after the business rescue proceedings began;

(d) criminal proceedings against the company or any of its directors or officers; or

(e) proceedings concerning any property or right over which the company exercises the powers of a trustee.

(2) During business rescue proceedings, a guarantee or surety of a company may not be enforced against any person, except with leave of the court and in accordance with any terms the court considers suitable.

(3) If any right to commence proceedings or otherwise assert a claim against a company, or against a person contemplated in subsection (2), is subject to a time limit, the measurement of that time must be suspended during the company’s business rescue proceedings.

137. Protection of property interests

(1) During business rescue proceedings -

(a) the company may dispose, or agree to dispose, of property only -

(i) in the ordinary course of its business;

(ii) in a bona fide transaction at arm’s length for fair value approved in advance and in writing by the supervisor; or

(iii) in a transaction contemplated within, and undertaken as part of the implementation of, a business rescue plan that has been approved in terms of section 155; and

(b) despite any provision of an agreement to the contrary, no person may exercise any right in respect of any property owned by, or in the lawful possession of, the company, except to the extent that -

(i) the supervisor approves in writing; or

(ii) the exercise of those rights is in accordance with -

(aa) an agreement made in the ordinary course of the company’s business;

(bb) the implementation of the business rescue plan; or

(cc) an order of a court.

(2) Subsection (1) does not extend to any property or right over which the company exercises the powers of a trustee.

(3) If, during a company’s business rescue proceedings, the company disposes of any property over which another person has any security or title interest, the company must promptly -

(a) pay to that person the sale proceeds attributable to that property; or

(b) provide security for the amount of those proceeds, reasonably satisfactory to that person.

138. Post-commencement finance

(1) To the extent that any money becomes due and payable by a company to an employee during the company’s business rescue proceedings, but is not paid to the employee –

(a) the money is deemed to be post-commencement financing, irrespective whether it has been approved by other creditors; and

(b) will be paid in the order of preference set out in subsection (3)(a).

(2) Any amount of financing obtained by the company during its business rescue proceedings, other than as contemplated is subsection (1), will be paid in the order of preference set out in subsection (3)(b).

(3) After payment of the supervisor’s remuneration and costs referred to in section 146, and other claims arising out of the costs of the business rescue proceedings, all claims contemplated -

(a) in subsection (1) will have preference in the order in which they were incurred over -

(i) all claims contemplated in subsection (2); and

(ii) all secured and unsecured claims against the company; or

(b) in subsection (2) will have preference in the order in which they were incurred over all unsecured claims against the company.

(4) If business rescue proceedings are superseded by a liquidation order, the preference conferred in terms of this section will remain in force except to the extent of any claims arising out of the costs of liquidation.

139. Effect of business rescue on suppliers and employees

(1) Despite any provision of an agreement to the contrary, during a company's business rescue proceedings-

(a) any person who, immediately before the beginning of those proceedings, was supplying or had contracted to supply to the company any goods, services or inputs that the management of the company regards as essential to the conduct of its business -

(i) must continue that supply to the company on the same terms and conditions, except to the extent that -

(aa) the supplier and the company agree terms and conditions that are more advantageous to the company;

(bb) a court orders otherwise; or

(cc) an approved business rescue plan provides otherwise; and

(ii) must be paid by the company on a current basis for any such supply made after the business rescue proceedings began; and

(b) employees of the company immediately before the beginning of those proceedings continue to be so employed on the same terms and conditions, except to the extent that -

(i) changes occur in the ordinary course of attrition;

(ii) the employees and the company agree terms and conditions that are more advantageous to the company; or

(iii) an approved business rescue plan provides otherwise.

(2) Despite any provision of an agreement to the contrary, during business rescue proceedings, the company may unilaterally abrogate or suspend entirely, partially or conditionally any provision of a contract to which it is a party, other than a contract of employment, and if it does so, any other party to that contract may assert a claim against the company only for damages.

(3) If liquidation proceedings have been converted into business rescue proceedings, the liquidator is a creditor of the company to the extent of any outstanding claim by the liquidator for any remuneration due for work performed, or compensation for expenses incurred, before the business rescue proceedings began.

140. Effect on shareholders and directors

(1) During business rescue proceedings -

(a) an alteration in the status of a shareholder or shareholders of a company, other than by way of a transfer of shares in the ordinary course of business, is invalid except to the extent –

(i) the court otherwise directs; or

(ii) contemplated in an approved business rescue plan; and

(b) the board and directors of a company must continue to perform and exercise their functions and powers, subject to the authority of the supervisor.

(2) If, during a company’s business rescue proceedings, the board, or one or more directors of the company, purports to take any action on behalf of the company that requires the approval of the supervisor, that action is void unless approved by the supervisor.

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Go to Part B: Supervisor's functions and terms of appointment.

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