Can a creditor cancel an agreement with a company in business rescue and what is the consequence of a business rescue practitioner suspending an agreement before cancellation?
The lawfulness of cancelling a contract during business rescue
The advent of the new Companies Act 71 of 2008 (the Act) brought with it a shift from a creditor-protectionist society towards a business rescue model that is debtor-protectionist. In consequence, there has been a swarm of applications taking advantage and exploiting this new scheme. This shift has unfortunately led to considerable abuse of the business rescue procedure.
It is common practice to find directors of a company standing surety for the company in order to secure its debts. The consequence could be severe for the sureties, because if the company is unable to pay its debt, the creditor can take legal action against the directors or other third parties in their capacity as sureties, unless the company pays its debts and the sureties are released from liability.
Section 153 (1)(b)(ii) of the Companies Act 71 of 2008 (the Act) is intended to afford a remedy to affected persons who support a business rescue plan that has been
The section can be broken down into five key elements:
In this article we investigate whether, in South African law, a subordination agreement could constitute a "voidable disposition" as defined in section 26 of the Insolvency Act 24 of 1936 (the Act).
Section 26 of the Act provides that every disposition of property not made for value may be set aside by the court, if the disposition was made by an insolvent (whether an individual, company or close corporation) either:
It’s an open secret that the commendable goals envisaged by the legislature with the introduction of the business rescue proceedings in Chapter 6 of our Companies Act are being hampered as a result of poorly drafted statutory provisions that govern the business rescue process. Section 141(2)(a)(ii) is however not one of these vague provisions.
There has been considerable controversy about the extent of the powers, and the extent of obligations of a business rescue practitioner in relation to a cession of book debts by the company in rescue.
This is an important issue in business rescue because most financially distressed companies have an overdraft facility with a bank which is secured by a cession of debtors. Many practitioners want or need to use the overdraft facility as working capital.
Cession (generally)